Next 12 months going to be a stock pickers' market; it would be tough to generate great returns: Dipan Mehta

Economic Times

25-06-2025

Dipan Mehta, Director, Elixir Equities, says a few largecap Nifty companies like Bajaj Finance and Bharti Airtel can sustain 15%+ growth. Many mid and smallcap companies offer similar growth, but high valuations pose a challenge. The market is shifting, demanding granular stock picking for wealth creation after a period of broad gains, making the next 12 months selective.
ADVERTISEMENT Which are the two, three, four companies which you are happy to own because you are not buying stocks, you are buying these lovely businesses?
Dipan Mehta: Within the largecap space, there are hardly any companies in the Nifty which have the potential to grow at 15% plus. To that list, one can include Bajaj Finance, Bharti Airtel, and to an extent L&T. These three companies come to mind where growth rates can be 15% plus; maybe an M&M, and to an extent Eicher Motors. Within the Nifty companies, only five or six companies have the potential to grow at 15%. The rest I am not so sure about.
In the midcap space, many companies are growing at 15% plus. Look at all the defence companies. Look at some of the capital goods companies, some of the renewable energy equipment manufacturers and the power distribution companies. There are many businesses within the midcap, smallcap space which have the potential to grow at 15%. But the irony is that these businesses the PEG is more than three times, almost four times.
So, if you have a company which has got reasonable corporate governance standards, high ROE, and 15% long-term growth, it is easily trading at 60 times plus trailing 12 months and at those valuations, I am not sure that you will get superlative returns. You may get returns in line with what the earnings growth is, but that is not going to move the needle too much in terms of wealth creation. It is a bit challenging at this point of time and one needs to get more and more granular and bottom up.
The next 12 months is going to really be a stock pickers' market and the entire situation will get very selective. It will be tough to generate great returns. The last four years were fantastic. Across the board, all stocks did well. Things are gradually changing as we have seen in the past two-three months, especially in the quarterly results which went by.
The first half of this year was volatile. It was full of news, tariffs and geopolitical tensions. In the second half, as we roll over from the first half of this calendar year to the second half, what could influence the script of the market?
Dipan Mehta: I do not think much is going to change. At the end of the day, investors are focused on corporate earnings and the entire FY24-25 was a year of slowdown and consolidation. We saw a sharp reduction in the earnings growth of a lot of sectors, and a lot of companies. Then, we have had the RBI interest rate cut which was very surprising and positive at half percent. We had the Budget which reduced the personal taxes for a lot of individuals, so that should aid consumption.
ADVERTISEMENT We have had a good monsoon so far and government policies generally have been supportive. All investors are waiting for the corporate profits to improve in this financial year and June quarter onwards. June may be soft because I was disappointed with the advanced tax numbers by the corporate sector, but at some point of time around the busy season, post monsoon, we should see an improvement in demand, and in consumption even in capital goods and that should aid earnings growth. That is the only way this market can break its earlier highs and go to that 28,000, 29,000 Nifty levels. So, we have to wait for the corporate earnings to move up. This is only as much that PE multiple expansion can take the market higher. A lot of the focus in the next six months is going to be on this revival of corporate earnings and let us see how that plays out. All the ingredients are there, the foundation is there that earnings should improve as compared to last year 24-25. But nothing is kind of cast in stone. We need to wait and watch and we need a more broad-based recovery in earnings to get much higher returns than what we have seen in the past year.
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