Gohil acknowledges the strong macro backdrop: BSE 500 companies are sitting at all-time high margins, debt-to-EBITDA ratios have collapsed from three times to just one times, and return on equity stands at roughly 15% — second only to the United States among major markets. But he warns this very strength could be a precursor to margin compression, not a signal to buy indiscriminately.
“”Balance sheets are in very good shape, margins are at all-time highs — which means the investment boom is coming, and with it, margin compression.””
Why earnings could disappoint
Gohil expects Nifty earnings growth to land in the low double digits — not the higher range that bulls are pricing in. He attributes this to rising competitive intensity, particularly in banking and consumption sectors, where companies have enjoyed abnormally high profitability. As corporates reinvest into capacity and technology — partly spooked by the IT disruption playbook — pricing power and margins will come under pressure.
On the foreign institutional investor (FII) front, Gohil is candid: the global AI rally continues to divert capital away from India, as investors question whether any Indian company has a genuine right to win globally in the technology space. He does not expect a heavy FII comeback until the AI momentum cools globally.
The PSU trade is not over
Despite a strong multi-year run, Gohil firmly believes PSU stocks — and PSU banks in particular — remain undervalued. The total profit pool of listed PSUs has expanded from ₹1 lakh crore to ₹5.5 lakh crore, with PSU banks now contributing roughly 40% of that pool, up from around 20% a few years ago. Credit growth at PSU banks is running at 14–15%, ahead of private sector peers at 11–12%, while credit-to-deposit ratios of around 70–80 leave meaningful room for further lending growth. NPA numbers and credit costs have also improved materially.
Beyond banking, Gohil points to the power sector and data centre infrastructure as structurally compelling themes, driven by India’s accelerating digital buildout and rising electricity demand.
What to avoid: Consumption and overpriced defensives
The CIO is notably cautious on the lower end of the consumption pyramid. Household net savings are at a 40-year low, and job creation for lower-income cohorts remains weak. Microfinance, though starting to show recovery signs, needs at least another two quarters before investors can feel confident calling the bottom.More strikingly, Gohil flags paint and cement companies as sectors to avoid outright. Despite significant underperformance, valuations in these names remain stretched — north of 40 times earnings — while revenue growth is projected to stay in single digits. He sees meaningful further valuation de-rating ahead.
For investors navigating a market with uneven opportunity, Gohil’s playbook is clear: own the reform beneficiaries, avoid the expensive laggards, and wait patiently for consumption to find its footing.