Expert view: Market correction opens opportunities; focus on growth & valuations, says Equitree co-founder

Expert view on markets: Pawan Bharaddia, co-founder and CIO of Equitree Capital, believes the recent correction in the Indian stock market has created several attractive opportunities with a favourable risk-reward ratio, making it appealing for bottom-up stock pickers. In an interview with Mint, he shared his views on the current market structure, the sectors he is optimistic about, and more. Edited excerpts:

What is your take on the current market trend? With most negatives priced in, should we expect a rebound now?

Over the past few months, we have repeatedly communicated with our investors to brace up for volatility.

While headline indices like the Nifty 50 and Nifty 500 have corrected nearly 15 per cent and 18 per cent, respectively, from their highs, individual stocks have seen much more carnage, with up to 30-40 per cent drawdowns.

Despite this broad-based selloff, pockets of exuberance remain, particularly in sectors such as capital goods, renewable energy, and select consumer companies, where valuations still don’t give a reasonable amount of safety to buy into.

Having said that, the recent market correction has cultivated quite a few interesting opportunities with favourable risk-to-reward ratios, making it interesting for bottom-up stock pickers.

We believe that the broad market base will take some time to consolidate and still experience some volatility, allowing the stronger hands to build quality portfolios and prepare them for the next cycle.

What are the key concerns that investors should not overlook?

Interestingly, despite all the books written on investing, investors often overlook the most fundamental aspects—growth and valuations.

The extreme exuberance or fear makes investors disillusioned from this basic aspect in both the bull and bear market and often leads them to commit errors either way. Investors must remain focused on business visibility rather than being swayed by market narratives.

What is your expectation from Q4 results after three-quarters of softer earnings?

­­Q4 has traditionally been a strong quarter for corporate India, but this year will be quite intriguing given the high base from last year.

While the overall growth has remained tepid in nine months of the current financial year (9MFY25), several pockets remain resilient.

To put this in context, our portfolio companies reported an absolute 19 per cent growth in profit on a year-on-year (YoY) basis for 9MFY25 against a flattish growth for the broad base of the market.

We expect this kind of outperformance to continue in Q4, reinforcing the quality of the businesses we own and the resilience of our ground-up approach to investing.

What should be our investment strategy at this juncture? Should we stick to only large caps or do bottom fishing in mid- and small caps?

At Equitree, we don’t believe in classifying investing based on the market cap size.

Irrespective of the market cap, one must cut across the jargon and equally focus on the underlying business growth and valuations.

While we all hear the market chatter about the Nifty being undervalued, if we slice it down between the BFSI and non-BFSI segments, the median P/E (price-to-earnings) multiple for non-BFSI stocks stands at over 30 times—comparable to valuations in the SMID (small and mid-cap) bucket.

Likewise, it's not that the entire small and mid-cap companies are trading at high valuations. For instance, our own portfolio, which comprises only small and micro-cap companies, trades at 14 times P/E based on FY26 PAT (profit after tax) – in line with its 10-year average.

Amid all the noise, the key is to stay true to one’s investment philosophy—focusing on well-understood businesses led by strong promoters and available at attractive valuations.

Which sectors do you expect to see healthy traction in the medium term? Why do you think so?

We remain bullish on India’s manufacturing and engineering sectors, particularly in segments such as agricultural equipment, auto ancillary, apparel, chemicals, and railways. 

Two key themes drive growth in these industries—import substitution and a rising share in global merchandise trade. 

Similarly, we see significant opportunities in the Indian infrastructure ancillary space alongside select consumer plays. 

The government’s continued focus on infrastructure spending should be a strong growth catalyst for this segment. 

Additionally, the multiplier effect of these investments, combined with recent tax breaks, is expected to provide much-needed stimulus to the consumer sector, which has been under pressure for some time.

Do you see value in the defence sector after a significant correction?

The defence sector offers a substantial addressable market supported by strong structural tailwinds. However, despite recent corrections of 40-50 per cent from their peaks, we still find valuations quite stretched to buy into. Broadly the defense pack is currently trading at TTM (trailing twelve-month) PE multiples exceeding 50 times, which, from a risk-reward perspective, limits the margin of safety that we’d ideally prefer.

Given the heightened uncertainty around Donald Trump's tariff policies, should investors steer clear of export-oriented sectors like IT and pharma at this point?

They say that the best investment opportunities are often found in the most uncertain times! 

Most macro factors are beyond an investor's control. While the market anxiously watches the direction of ongoing tariff wars, investors should rather focus on business models with the agility to adapt and emerge stronger. 

We believe pure cost-arbitrage players may face headwinds from unfavourable tariff structures, but companies offering cutting-edge products and services are likely to be far more resilient. 

Identifying such businesses will be key to navigating volatility and capitalizing on long-term growth.

Where is smart money moving at this point? Is there any notable change in the behaviour of HNIs and UHNIs?

Recently, many HNIs/UHNIs have faced significant losses chasing investment fads—whether through venture capital, unlisted markets, or momentum buying in the market. 

Amid this turbulence, we are seeing a lot of traction coming back to our genre of fundamental investing, where one is more focused on businesses ground up at reasonable valuations. 

This disciplined strategy has played a crucial role in mitigating downside risk and preserving capital. For example, while the broader market is down over 30-40 per cent from its 52-week high, we are down around 17 per cent from our 52-week high. 

This resilience underscores the importance of a fundamental-driven approach, which focuses on long-term value creation rather than short-term speculation. 

This is driving increased allocations from new and existing investors alike.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.