Speaking to ET Now, Krishna Appala from Capitalmind PMS noted that the current market strength is not merely speculative. “After almost a year of consolidation, Nifty is close to an all-time high and this time actually it looks like it is backed by earnings visibility not only just for Q2 but we expect this visibility to continue for Q3 as well,” he said. According to him, recent reforms in liquidity, tax structures, and GST implementation have built a solid foundation for a sustainable rally.
However, he pointed out that “till now whatever you see, it is almost only largecaps participating in the rally. Year to date, Nifty 50 is up 9%, midcap index is up 4%, and smallcap index is down 3%.” Appala expects this trend to change as the earnings season progresses, leading to a “broad-based” rally across sectors.
Financials, Consumption and Infra Lead the Way
Commenting on sectoral performance, Appala said, “You take financials, NBFCs, large banks—they are delivering very good numbers. In fact, AMCs are also delivering very good numbers.” He added that his fund remains positioned in the broader financialization theme, including banks, NBFCs, AMCs, and brokers.
He also highlighted encouraging signs in premium consumption and infrastructure. “Premium consumption — like high-end cars, SUVs, hotel bookings — is showing early signs of strength,” he observed. On the industrial front, capital goods, infrastructure, and defence names “are also having some good order book visibility.”
FII Selling Reverses, India Regains Emerging Market Focus
Appala acknowledged that India had underperformed global peers earlier this year, but he believes the tide is turning. “We had seen consistent FII selling from July to September, but a reversal in October. They have bought around ₹6,500 crore in cash markets,” he said. He added that the earlier “sell India, buy China” trade has largely played out. “Earnings are coming back; valuations are much better; and the growth outlook for India remains strong. It’s just a matter of time when FIIs start to come back in a big way,” he stated, adding that strong domestic SIP flows have already helped sustain the market even during FII outflows.
Earnings Still Key for Sustained FII Interest
On whether FIIs have truly made a comeback, Appala remained cautious. “Too early to say that they are making a comeback immediately,” he said. “They have stopped selling, but they are waiting for the earnings to kick in.”
He pointed out that Q2 results so far have been mixed. “Nifty 50 median PAT growth even for 20 names is hardly 5%, and median PAT is actually flat 1-1.1% year-on-year. The idea is that the market has already discounted Q2 and moved ahead to Q3.”
Defence, Tech and IT: Selectivity is the Key
On valuations in the defence sector, Appala said, “The valuations are still stretched because whatever PE expansion had to happen has already happened on order book visibility. However, there are few names like BEL where the valuations are still okay and visibility is much better.”
He warned investors to remain selective, as many mid and PSU defence stocks “are trading at 50, 60, 70 times valuations which are not comfortable.”
Turning to new-age tech firms, Appala acknowledged their strong performance. “They are delivering consistently. We have seen Zomato delivering great numbers,” he said, while adding that the current growth rate of 50–70% may not sustain over the next decade. “They will continue to grow at 30–40% CAGR for the next two to three years, but valuations do not justify new entry at this stage,” he cautioned.
Largecap IT in Wait-and-Watch Mode
Appala remains cautious on largecap IT. “One sector which we are still not so bullish or just being not fully allocated is largecap IT,” he said. “Small and midcap IT have created their own niche, but largecap service-based IT is still yet to get back to their growth numbers.”
Although valuations have corrected, Appala believes the sector still needs time to prove earnings stability before attracting fresh investment.
Midcaps Show Early Growth Signs
Midcaps, according to Appala, are showing encouraging earnings trends. “Among Nifty 50, midcap and smallcaps till date in Q2, the fastest growth we are seeing is in midcaps. Midcaps have delivered median sales growth of 12% and median PAT growth of around 13%,” he explained.
One of his top holdings is Pennar Industries — “not a recommendation,” he clarified — which operates in pre-engineered fabrication. “They are still available at mid-20s valuations, delivering 18–20% growth,” he said.
He concluded by reaffirming his bullish stance on “telecom, hospitals, capital goods, infrastructure, and premium consumption” — sectors he believes will continue to lead as the Indian economy enters its next leg of expansion.