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Informist, Friday, Jun. 19, 2026

 

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--Asit C Mehta's Bhamre: Equities likely to de-rate more post US-Iran war
--CONTEXT: Asit C Mehta's research head Siddarth Bhamre in an interview
--Asit C Mehta's Bhamre:Disruptions due to US-Iran war to have longer impact
--Asit C Mehta's Bhamre: Disruptions due to war, weak monsoon may hit growth
--Asit C Mehta's Bhamre:Mkt needs to consolidate 1-2 yrs to become attractive
--Asit C Mehta's Bhamre:Comfortable with 21-22 times trailing PE for Nifty 50
--Asit C Mehta's Bhamre: Equity market should de-rate due to slower growth
--Asit C Mehta's Bhamre:AI impact on IT earnings makes case for mkt de-rating
--Asit C Mehta's Bhamre: Don't expect FIIs to return immediately to equities
--Asit C Mehta's Bhamre:IT sector pain to be felt eventually by full economy
--Asit C Mehta's Bhamre: Metals valuation gung ho, but cyclical risks loom
 

 

By Anshul Choudhary and Rajesh Gajra

 

MUMBAI – The disruption caused during the three months of the US-Iran war could have a big impact on economic growth and lead to further de-rating of the Indian equity market, says Siddarth Bhamre, head of institutional research at Asit C. Mehta Investment Interrmediates Ltd. Owing to this, equities are not out of the woods yet and the market either needs to fall more or consolidate for one-two years before it returns to levels attractive for foreign institutional investors, Bhamre tells Informist in an interview.

 

While he expects de-rating of the equity market, he sees this happening over a few quarters, not immediately. "Am I expecting there will be a big correction or something? No, I think we are going to spend more time here...because (if) the growth in the earnings is reducing, my PE needs to come down," he said. "...the best case scenario is if we spend one-two years over here, then only then we will become attractive...or you should see immediate correction to realign with the lower growth."

 

The Nifty 50 index should be valued at a price-to-earnings multiple of 21-22 times on a trailing basis, considering the risk to earnings growth, he said. The Nifty 50 index is currently at 22.4 times the earnings per share of 2025-26 (Apr-Mar), based on EPS data from Kotak Securities. For the index to be under the valuation range given by Bhamre, it would have to fall 2-6% more. On Thursday, the Nifty 50 index ended at 24168.00 points.

 

He acknowledged that the market has not performed over the last two years due to expensive valuations and a slowdown in earnings growth of corporates. The Nifty 50 index is down nearly 9% from its lifetime high of 26373.20 points--reached at the start of the year--and down nearly 5% from pre-war levels of February.

 

Bhamre argued that a slowdown in economic growth should logically follow a de-rating in valuation metric for the equity market. "If you look at the consensus, it has come down from 7.2% to 6.5-6.6%...if it goes below 6.2-6.3%, it is not good news for us," he said. Earlier, this month, the Reserve Bank of India had cut the GDP growth forecast for FY27 to 6.6% from 6.9% due to high crude oil prices.

 

The three-month war is likely to further delay the recovery in growth and the market may not return to pre-war valuations anytime soon, he said. "...one year back, people were comfortable giving India 27-28 PE. And now because war has stopped, then again India should get 27-28 PE? No, it doesn't happen that way," he said, adding he is not comfortable with giving PE multiple of 27-28 times to the Nifty 50 index right now. "The dynamics of valuation change. They don't remain same. This episode of three and half months will lead to change in dynamics...India gets de-rated because of this," he said.

 

Bhamre expects de-rating largely because of slower growth prospects after the US-Iran war. Disruption due to the war "damaged" demand in the economy and it will take some time before economic growth returns to pre-war levels, he said. "These issues for three months can have impact and it should probably last for some industries for years....my take is that the impact (of war), if not on inflation, but on earnings and GDP growth would be substantial."

 

He also expects the possibility of a below-normal monsoon this year to affect economic growth. "Rural areas were doing pretty well last year and it was visible in auto numbers...because of the monsoon situation, we may see in one-three quarters down the line, they (rural) have an issue," he said. Bhamre expects Nifty 50 index companies' earnings to rise 12-15% in FY27, but he pointed out that a weak monsoon season and disruption due to the war may hit growth.

 

Going forward, he expects challenges being faced by information technology companies from artificial intelligence to also affect economic growth. However, he expects sense to prevail at some point and people to realise that AI will not kill the services sector, but simply change the business dynamics. "Infosys, TCS are not going anywhere. It is just that this transition period would be, the growth would be getting compromised. Probably, margins would get compromised. RoI may be reduced," he said. This hit to a large sector like information technology also makes a case for further de-rating of the Indian market, he said.

 

"I believe there are a lot of important sectors which are going through challenging time. But these challenges are not like that you can break our back. But these challenges will certainly compel investor community to realign their expectations. And, when you are realigning your expectations to challenges, you have to de-rate your PE," he said.  

 

MID-, SMALL-CAPS

Bhamre said the narrative around mid-cap and small-cap stocks has completely changed over the last decade. Amid promises of higher growth, these stocks are being valued at much higher earnings multiples than large-caps. He finds the argument flawed and points out that mid-caps and small-caps used to trade at lower valuations compared to large-caps just a decade back despite the former reporting higher growth.

 

He said mid-caps and small-caps are trading at expensive valuations due to large money flowing through mutual funds. "All these mid- and small-cap fund managers have problem of plenty. They have lot of funds coming in this segment, but they don't have that many great ideas to invest in," he said.

 

For such valuation multiples to sustain, investments would need to keep coming into these stocks but Bhamre argues he is seeing signs of some slowdown in domestic money going into mid-caps and small-caps. He expects retail investors to eventually limit the money moving to equity markets, considering poor returns over the past two years but he expects this to happen at slower pace than the past.

 

He said wealth redistribution has happened over the past two years. "For the last two years, FIIs have been selling, promoters have been selling; family offices, smart people have got into AIFs, unlisted space...this is classic distribution which has happened," he said.

 

The money coming into mutual funds from retail investors is emotionless money because these investors are not reacting when the market is going up or down, he said. "...when money doesn't react to market swings, your market's dynamics change," he said.

 

Bhamre, however, believes retail money chases fundamental performance. Whether this domestic liquidity will keep coming in or out is hard to tell, he said. "My thought process is, and we are seeing some signs of it, that domestic liquidity will take a breather." 

 

FOREIGN INVESTORS

The end of the US-Iran war may not push foreign investors back to Indian markets immediately because economic growth has slowed down and valuations are yet to turn attractive. Bhamre expects foreign investors to return only once economic growth improves or valuations come down to attractive levels.

 

While things have been sombre for Indian markets recently, Bhamre feels this could turn out to be positive from the perspective of foreign investors. "...this is a perfect recipe for FIIs probably to come back because last two years, markets have not gone anywhere. There has been some earnings growth, if not very significant. So, valuations have cooled off a bit," he said.

 

Further, the sharp depreciation of the rupee against the dollar recently could give foreign investors some comfort that it won't depreciate more. The rupee has depreciated nearly 10% against the dollar over a year, which has been among the major concerns of foreign investors.

 

SECTORAL DYNAMICS

In terms of sectors, Bhamre considers the pain that domestic information technology companies are going through to be a very big issue. For the last two decades, India's growth story was without doubt led by the IT sector and India became a service-oriented economy predominantly because of the IT sector, he said. The sector's growth created substantial job opportunities which, in turn, had a trickle-down effect on the entire economy, he said.

 

"Today, that sector is going through pain, and that will be felt eventually by the entire economy," Bhamre said. The local economies of Bengaluru, Hyderabad, Gurugram, and Pune, in particular, and their respective real estate development, will take a hit, he said. 

 

Bhamre, however, does not consider the impact of artificial intelligence to be severe. Technology is an integral part of the offering and AI is just the cherry on top, he said. "AI needs a base. Who is going to do that donkey's work? Indian IT will only do it. But because there is a reconfiguration, some players might lose out. Some new players would emerge," he said. For the next two-three years, however, the IT industry's revenue growth and margins will get compromised, according to Bhamre.

 

On the metals sector, particularly steel, Bhamre's views are in contrast to the significant bullish sentiments being expressed by steel companies' managements and analysts on huge domestic demand ahead. Large steel companies have announced large capacity expansion for the next four-five years and have expressed confidence that this will be funded by accruals and strong operating profit.

 

Commodity companies are cyclical businesses, according to Bhamre. "No matter how rosy you want to put things... ultimately, it (steel) is a commodity," he said. Bhamre is of the old school of thought that one buys into these companies "when they are loaded with debt" and sells them "when the least amount of debt is there." 

 

Currently, steel companies have the least amount of debt, he said. The revenue growth numbers of these companies "are getting inflated not because of volumes but by the prices," he said. 

 

Prices of commodity metals, including steel, have been on a sharp upswing in the recent past, and "valuations are gung ho," he said. In commodity cycles, at some point after an upswing, prices start coming down due to a demand slowdown. 

 

The utilisation rates on enhanced capacity start to come down, but with fixed costs and high shutdown costs, margins start going down, according to Bhamre. At that time, companies start accumulating debt, he said.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Avishek Dutta

 

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