Canara Robeco’s Shridatta Bhandwaldar Sees Market Consolidation, Bets on Capital Goods and Financials

Mumbai | May 29, 2025 — As the Indian equity market shows signs of stabilizing after a robust rally over the past few quarters, Shridatta Bhandwaldar, Head of Equities at Canara Robeco Asset Management Company (AMC), anticipates a phase of market consolidation. Despite near-term volatility, Bhandwaldar remains optimistic about the long-term prospects of two key sectors: capital goods and financials.

Market Context: Valuations at a Crossroads

The Indian stock market has delivered substantial returns in recent years, buoyed by strong domestic economic growth, increased retail participation, and resilient corporate earnings. However, valuations in several segments are now approaching historic highs.

According to BSE data, the Sensex and Nifty 50 have seen year-on-year gains of approximately 18% and 20%, respectively. These gains, while encouraging, have also raised concerns about overstretched valuations in certain sectors, particularly in consumer discretionary and IT services.

"Markets don’t move linearly. After a strong performance over the last 18–24 months, we believe a consolidation phase is both healthy and necessary," said Bhandwaldar in a recent investor note. "This period will allow earnings to catch up with valuations."

Sectoral Bets: Why Capital Goods and Financials?

Bhandwaldar’s conviction lies in sectors with structural growth stories and relatively attractive valuations—capital goods and financials.

Capital Goods: Riding the Investment Cycle

India is witnessing a revival in its private capex cycle, bolstered by government-led infrastructure spending and PLI (Production Linked Incentive) schemes.

“The capital goods sector is benefiting from both public and private investment uptick. Order books of companies are at multi-year highs, and execution capabilities have improved,” Bhandwaldar noted.

Companies in industrial automation, power transmission, and defense manufacturing are particularly well-positioned to capitalize on this trend. Analysts at Canara Robeco estimate that the sector may experience high double-digit earnings growth over the next two years.

Financials: Undervalued Strength in Stability

On the financials front, Bhandwaldar sees a strong case for rerating. While valuations have remained subdued, particularly for large private banks, asset quality has steadily improved.

“Credit growth is healthy, NPAs are at cyclical lows, and balance sheets are stronger than ever. We believe the market is underappreciating the operational leverage that lies ahead for many of these institutions,” he said.

He added that non-banking financial companies (NBFCs) with a retail lending focus and strong underwriting processes also stand to benefit as credit demand broadens across income segments.

Fund Strategy: Active Over Passive

Canara Robeco AMC, which manages assets over ₹60,000 crore, continues to prefer active management in the current environment. Bhandwaldar emphasized a bottom-up stock picking approach, with a focus on quality businesses that demonstrate strong cash flows, prudent capital allocation, and sustainable competitive advantages.

In a recently released equity strategy update, Canara Robeco highlighted its overweight positions in capital goods and select financial names while remaining underweight on consumer durables and IT.

“The margin of safety in capital goods and financials is still attractive compared to sectors that are priced for perfection,” Bhandwaldar noted.

Short-Term Risks: Elections, Global Cues, and Liquidity

While the long-term outlook remains constructive, Bhandwaldar acknowledged short-term risks that could contribute to market volatility.

1. General Elections

The upcoming Lok Sabha elections later this year could bring about policy uncertainty, especially if there’s a fractured mandate.

2. Global Monetary Policy

The U.S. Federal Reserve’s stance on interest rates, especially amid inflationary pressures, will remain a critical external factor influencing FII flows.

3. Liquidity Dynamics

Domestic mutual funds continue to see strong inflows, but any reversal in this trend could weigh on market sentiment.

Investor Outlook: Stay Invested, Stay Selective

For retail investors, Bhandwaldar advises patience and prudence.

“This is not the time to chase momentum. Investors should stay invested with a three-to-five-year horizon and consider systematic investment plans (SIPs) to mitigate volatility,” he recommended.

He also emphasized the importance of asset allocation. “While equities remain the best-performing asset class in the long run, diversification into debt and gold can provide downside protection,” he said.

Conclusion: A Time for Balance

Shridatta Bhandwaldar’s market outlook reflects a blend of caution and conviction. While he anticipates market consolidation in the near term, his confidence in capital goods and financials underscores the potential of sectors tied to India’s economic transformation.

As markets adjust to evolving macro and policy dynamics, Canara Robeco’s strategy of focused, fundamentals-driven investing offers a roadmap for investors seeking long-term value in uncertain times.