Exclusive | ‘India may not be cheap, but not expensive either’: Motilal Oswal’s Gautam Duggad on 2025’s hottest stocks – Market News

FY25 may have been a flat year in terms of quarterly results but Motilal Oswal is upbeat about the earnings trajectory going forward and expects 12-14% earnings growth next year. Gautam Duggad, Head of Research – Institutional Equities at Motilal Oswal Financial Services, pointed out that India’s valuation will track the underlying earnings growth. According to him, “India may not be cheap any longer but not expensive either.”

In an exclusive conversation with Financialexpress.com, he listed out the top additions to Motilal Oswal model portfolio, his take on defence, financials and shares his mantra for new investors. 

Where do you think are the markets headed over the medium- and the long-term

The markets have come a fair distance from the lows of March. A large part of it is driven by good fourth quarter earnings and improvement in macros. Corporate earnings have also been much better than expectations- at 10% growth Vs expectation of 2% earnings growth.

Most importantly, the quality and spread of the earnings have been far better. 19 out of the 22 sectors in our coverage posted either in-line or better than expected earnings. Even the spread has improved. We have exited FY25 with a very good momentum.

If earnings compound at 13-14% over the next two years, then the Nifty should give you similar returns.

While India may not be  cheap any longer, we are not expensive either. The market should broadly track the underlying earnings growth.

What’s your outlook on the earnings trajectory for FY26

On an annualised basis, FY25 was a flattish year where we were actually expecting a double digit earnings downgrade. Nifty clocked EPS growth of 1% and 4% profit growth after four years of 21% compounding between FY20-FY24. Our expectations for the next two years is 12-14% earnings growth. 

More importantly, the macros have been at the best levels in more than a decade and a half – GDP at 6.5%,  inflation down to 3%, RBI delivering 100 basis point monetary easing, liquidity moving to surplus from deficit along with tranches of CRR cuts coming up. The government has also cut income tax rates and improved the capital spending.

The capex spend for FY25 also surpassed expectations. It was at Rs 10.5 lakh crore Vs a budgeted amount of Rs 10.2 lakh crore. Out of this, Rs 2.4 lakh crore was spent in just March. Incidentally this was the total capex for the entire FY15. So that’s how far we have come in 10 years. 

All of these factors put together gives us confidence that corporate earnings will revive again.

The recent Motilal Oswal earnings report highlighted the midcap outperformance, what’s your expectation going forward?

The Midcaps obviously stood out. We expect the midcap earnings growth to be around 17-18% CAGR over next two years. The midcaps delivered 19% growth Vs expectation of 10%.The Smallcaps, in comparison, declined 16% Vs forecast of 11% slowdown. Midcaps, therefore had a standout performance., given the extent of aggregate earnings growth that we have seen there.
However, if this kind of earnings delivery continues, then possibly the midcaps can continue to remain expensive.

What are the sectors that you see a lot of value in at the moment?
We see value in financials- private banks, PSU banks, NBFCs. I think there is a lot of money to be made in NBFC capital market plays on a 3-year horizon. 

We also find value in healthcare, technology, select consumer discretionary, auto and telecom. Value doesn’t necessarily mean low 1-year forward PE. Consistent steady growth over a long period will deserve higher multiples. 

However, given the cycle where they are in, some sectors like hotel, real estate, EMS, consumer durable may look expensive on a 1-year forward PE multiple basis, but over 3-5 years,, they can make money from these levels too.

I mean, if I were to extend that argument at a country level, China has always been considered as a cheap market India has always been considered as an expensive market. Despite that, on a 20-25 year, 15-10 year basis, India has handsomely beaten China. We have delivered 10% plus kind of dollar returns. China has been flattish for 2 decades now.

What are Motilal Oswal’s top conviction bets in banking?

Our preferred ideas include ICICI Bank, Kotak Mahindra Bank, HDFC Bank among large caps. Among PSU banks, we like SBI.

In the midcap space, we like AU Small Finance Bank and Federal Bank. But we consider banking as a segment has become very big now. It will keep growing well, but it will not generate disproportionate alpha.

If you’re looking for big gains in financials, then you have to go beyond the plain banking stocks and look at NBFCs, capital market stocks. Those are the segments that we are far more bullish on.

What are the key stocks that you have added to your model portfolio?

We change our model portfolio 4 times a year during our preview. January, April, July and October. So the last revision happened in April, wherein we had raised weights in some of the capital market stocks like Angel, BSE. We have added Keynes, UltraTech. SRF, Suzlon.

Apart from that, we already have Kotak, Titan, Indian Hotel, Page Industries, Bharti, M&M, TVS Motor.We have been holding these for a very long time.

Do you expect further upside in defence stocks and your top picks there?

The recent geopolitical issues, border tension between India and Pakistan obviously helped the cause of defence companies. The expectation is that defence as a story will continue to run for multiple years as government looks to further strengthen its defence preparedness, go for indigenisation, target multiple areas of development

But the valuation of the defence stocks now are rich after the run-up seen in the last three months. So there can be a situation where the business can continue to do well and the stock can see some time-based correction or languish sideways for a while.

We like Bharat Electronics and Hindustan Aeronautics in this space.

After a brief lull, we are seeing signs of IPO frenzy returning and some big names like NSE, NSDL are in the pipeline. Your views

Actually I won’t call it a frenzy. People get excited looking at the absolute number of moving rates. However, for the right perspective you need to look at it in the context of the market cap and the GDP of the country. On a $4 trillion GDP, Close to Rs 5 lakh crores or $60 billion was raised combining all fund raising instruments including QIPs, IPOs, block deals, etc.

On a market cap of $5 trillion. It’s like 1.2%. As the market evolves, we become bigger, we offer depth, more companies are going to list . It’s not a frenzy yet, considering the percentage of market cap it accounts for at the moment. 

What could go wrong that would take all bets off the market?

One of the things which could go wrong and something which is always volatile and thus difficult to predict is the global setup, be it tariff headwinds or current geopolitical tension. Suddenly out of nowhere, the Israel and Iran conflict gathered pace. That’s the kind of worries which sometimes make it very difficult to factor in near-term impact. They can spring up from anywhere.

With India, we don’t see any big outside stress. The political calendar is very light in 2026.

What would be your suggestion to new investors at the moment?

To start off with, a big favour that investors can do themselves is start early. The younger one starts, the higher the risk taking capacity would be. This essentially leads to higher allocation towards equity. The more the allocation towards equity in younger days, the better the overall result would be eventually after 10, 20 years. However, one needs to be consistent irrespective of the market conditions.

There would be periods when the markets may correct 20-30% in a matter of a few months and then  periods when markets may rally 20-30% in a few months. It is important to manage one’s emotion- both fear and greed. This will ultimately reflect in the portfolio value. So start early, stay consistent and control emotions.

What are you most excited about in the Indian context?
India now offers both size and growth – A  $1 trillion economy that is offering growth. Today at $5.3 trillion market cap, 12-13% earnings growth, 6.5% GDP growth, India offers a unique combination. 

This is very exciting. While the last 10-15 years have been good, possibly it would be the  lowest point for the forthcoming 10-15 years. We think India offers that kind of potential today where we have acquired a certain size and momentum and are offering good growth as well.

What are the books that you are reading or what 3 books would you recommend to every new investors?

One of the books I have started to read is Masterclass with Super Investors Insights from India’s leading Investors by Vishal Mittal & Saurabh Basrar. It gives you a good idea about the journey of some of these well known very widely tracked investors. That apart I keep reading some old favourites, Capital Returns by Edward Chancellor and also all of Howard S Marks’ books.

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