Gupta pointed out that earnings growth for the Nifty was around 12–13% in the latest quarter, while it increased to 20%, 30% and even 40% across the Nifty Junior, mid-cap and small-cap segments. He said the gap is partly because the Nifty is dominated by mature sectors such as IT, fast-moving consumer goods (FMCG), energy, private banks and auto, where earnings growth is likely to remain limited. “Outside that there are very exciting opportunities,” he said, while adding that this does not mean all large-caps should be avoided.
Within financials, Gupta is cautious on private banks because many are focused on corporate lending, prime mortgages and auto loans, where pricing power is limited. This has kept pressure on margins. While a possible rate hike could provide some short-term relief, he believes the larger structural issue will remain unless banks take greater exposure to higher-yielding segments such as small and medium enterprise (SME) loans, gold loans and affordable housing.
This is where he sees mid-sized banks and larger non-banking financial companies (NBFCs) standing out. These lenders are expanding in segments where yields are better, the market is large and competitive pressure is relatively lower.
Gupta is also selective rather than outright negative on IT. He prefers mid-cap technology companies that have moved beyond the traditional model of responding to client requests and instead proactively offer solutions and cost savings. He also sees an opportunity in alcoholic beverages, which he says combine relatively low competition with high growth.
On manufacturing, Gupta continues to like electronics manufacturing selectively but believes the next major opportunity is shifting towards aerospace, defence and semiconductors. He sees this group as being at a similar stage to electronics manufacturing three to four years ago. “That is the next big area,” he said.
In commodities, Gupta is cautious about sectors where China has significant capacity, such as chemicals and steel, because periods of supply shortages may not provide a dependable long-term investment case. He prefers base metals where China is less dominant, along with gold and gold-linked companies.Watch the full conversation here
Gold lending is another area where he sees significant potential. Rising gold prices and relatively low loan-to-value ratios provide comfort on asset quality, while the segment remains under-penetrated. Gupta believes gold loans could also take market share from personal loans as NBFCs offer secured gold loans at competitive rates. “So, I think gold loan will grow. It’s itself it’s under-penetrated, and gold loan can take share from something like a personal loan as well is our view,” he said.
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