Markets are at an inflection point. Nuvama Asset Management's Chief Investment Officer – Equity Alternatives, Nikhil Ranka, breaks down the sectors offering real opportunity and warns where returns may disappoint.
India's equity markets are flashing mixed signals, but for investors who know where to look, pockets of genuine opportunity are emerging. In a wide-ranging conversation with ET Now, Ranka laid out his thinking on retail, FMCG, defence, banking, and textiles, offering a clear-eyed take on which sectors can deliver and which may underwhelm.
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Retail: Don't expect a re-rating just yet
The retail sector has faced two years of disruption, largely driven by the rise of quick commerce. The revenue growth of India's top two listed retailers has moderated to around 20% over the past four to six quarters, and with stocks still trading at 60–70 times two-year forward earnings, Ranka sees limited room for multiple expansion.
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"If growth starts coming back, things could materially improve. But we need to see one or two quarters of sustainable 15–16% growth," he said, adding that without a meaningful uptick, those rich valuations could face further pressure. Investors should calibrate their expectations: returns from this space will largely track earnings growth, not valuation re-rating.
Jewellery shines brightest in discretionary space
Within consumption, Ranka's standout pick is jewellery, and the numbers back him up. The sector leader has delivered over 20% growth, while smaller players are clocking 25–30%. For investors seeking exposure to discretionary consumption, jewellery offers a cleaner, higher-conviction story than most alternatives.
On the FMCG side, volume growth of 5–8%, combined with three to four price hikes taken over the last six months, could translate into 10% revenue growth heading into Q1. With many FMCG stocks already down 10–15% in the past three months, Ranka sees a potential 10% catch-up trade shaping up.
Defence: A decade-long story, not a quarterly one
Ranka is bullish on India's defence sector but urges investors to take a long-term view. Quarterly numbers can be lumpy — a single delivery delay can distort the picture entirely. What matters, he argues, is the structural direction: rising domestic procurement, expanding export opportunities, and a growing global appetite for Indian defence hardware, including BrahMos missiles in the Middle East.
"Defence is a decadal opportunity," he said. Companies like HAL, which carry seven-to-eight-year order backlogs, may see muted near-term numbers, but could deliver explosive growth when deliveries accelerate.
Despite no immediate prospect of NIM expansion, Ranka believes the banking sector's recent rally has sound underpinnings. Three catalysts are at work: the reopening of the FCNR deposit window (with potential to raise up to ₹5 lakh crore), a fall in bond yields from 7.50% to 6.82% reducing treasury losses, and an easing of FII selling pressure after an intense ₹2.5 lakh crore sell-off — half of which was concentrated in financials.
Together, these could push deposit growth for large banks from 11% toward 14–15% in Q2, and loan growth potentially to 17–18%. With valuations still attractive, Ranka expects a "swift recovery" in banking names.
Textiles: Most of the move is already in
Post the US tariff scare, textile stocks fell 30–40% before recovering sharply on the back of the India-UK FTA and hopes of a future EU FTA. Ranka's assessment is pragmatic: about 60–70% of the re-rating has already happened. Investors chasing the remaining 10–15% upside should be selective — the easy money has been made.
