All bad news is priced in, but don't call it a bull market yet: SAMCO MF CEO Viraj Gandhi

India’s stock market may have absorbed the worst of geopolitical tensions, weak IT earnings and rupee pressure, but Viraj Gandhi, CEO of SAMCO Mutual Fund, says it is still too early to declare a bull market. Nifty’s ability to hold above 24,000 signals accumulation, he said, though sustained earnings growth and higher trading volumes are needed to validate the rally.

Edited excerpts from a chat on market outlook, sectoral ideas and which SIPs to invest in:

Do largecaps now offer a better margin of safety than mid and smallcaps?

Largecaps offer significantly better margin of safety. Nifty50 trades at 18.6x forward PE—9% below the 10-year average—with valuations at below historical norms for all top 10 constituents. FPI ownership sits at 34%,the lowest in two decades, indicating a deep valuation floor with potential for mean reversion. Mid and Small caps trade at 16-28% premium to averages, but moderation has been material since September 2024. The crucial difference: midcaps delivered 36% YoY and Small caps delivered 19% YoY earnings growth (Q4FY26) versus Large caps' 12%, making them suitable only for investors with higher risk tolerance and 3+ year horizons. Large caps are the safer choice for risk-averse allocations.

Which sectors have the clearest earnings visibility, and which face downgrade risk?
Private banks have delivered 15-18% ROE with loan growth at 1.7x nominal GDP and NPAs are at historic lows. Cement is accelerating at 8.6% volume growth with margins expected to recover to 18-20%. Capital goods and metals benefit from 11% GFCF acceleration and infrastructure spending. Telecom outperformed with +16% gains in May and structural growth intact.

IT services is most vulnerable as domestic revenue grew just 1.4% versus export growth of 12.6%, signaling earnings disappointment ahead. With 40% of IT work facing AI automation and local competitors gaining share, margins will compress. Consumer discretionary struggles with rising commodity costs and uncertain demand. Oil & Gas and manufacturing remain pressured by Middle East tensions and energy volatility.


Is the recent mid and smallcap momentum the beginning of a bull market?
Not quite yet, but conditions are encouraging. Despite multiple negative shocks over the past few months—geopolitical tensions, IT earnings crash, rupee weakness—the market has held above 24,000. This shows all the bad news is already priced in. The tight consolidation band (23,800-24,400) looks like accumulation rather than weakness, which is a positive sign. However, calling it a bull market is premature. We need 1-2 quarters of consistent earnings growth and higher volumes to confirm the rally. For now, it's a promising setup, not yet a confirmed bull run.


What will drive returns over the next 12 months: earnings growth, valuation expansion, or sector rotation?
It will be a combination of all three, but earnings growth will be the primary engine.

Earnings Growth (Primary): Corporate India's revenue is growing at 8.9% but needs acceleration. Nifty earnings grew just 5% in FY26, though FY28 projections remain stable despite FY27 cuts, signalling temporary weakness, not structural damage. Excess capacity across sectors can absorb growth without significant inflation pressure, making earnings the most reliable return driver.

Valuation Expansion (Secondary): Limited upside here. Large-cap valuations are fair to expensive, but 20%+ discounts exist in specific segments and smaller stocks. Any expansion will be selective and modest—enough to provide a tailwind but not a primary return source.

Sector Rotation (Tertiary): Expect rotation from rate-sensitive sectors (Real Estate, Consumer) and AI-disrupted names (Technology) toward Infrastructure, Metals, Telecom, and Banks tied to domestic investment cycles. This rotation adds return potential but also brings concentration risk. Global yield spikes could compress multiples, so earnings quality becomes critical.

The bottom line: earnings must accelerate for sustained returns. Valuation expansion and sector rotation will amplify gains but won't drive them alone.


Will AI significantly reduce IT services demand, or will enterprise adoption drive growth?
India’s listed IT services companies are trading at their lowest valuations in a decade—30-40% below historical averages—prompting debate over whether this represents genuine opportunity or justified caution. The sector faces structural headwinds as artificial intelligence automates routine software work and multinational corporations increasingly hire engineers directly or outsource to cheaper alternatives, with private companies now capturing 60% of India’s software export market compared to 36% a decade ago. Yet the narrative isn’t entirely pessimistic: enterprise adoption of AI-driven solutions remains robust, with 55% of IT services revenue expected to be enhanced by emerging technologies, and new opportunities emerging in cloud migration and cybersecurity that could offset traditional work displacement.

Valuations at 14-16x earnings versus a 23x historical average suggest downside risks are already priced in, though growth visibility remains clouded—with sector growth at just 1.4% against an industry-wide expansion of 12.6%. Ultimately, the story hinges on whether IT services companies can reinvent themselves as technology transformation partners rather than pure outsourcing vendors, or whether market share erosion proves irreversible. For investors, the calculus is clear: cheap prices alone don’t justify entry; proof of revenue resilience in an AI-transformed landscape must come first.


Which sectors are you most bullish on?
Private banking represents the most compelling opportunity in the market, with valuations trading at 1.8-2.2x book value against historical averages of 3.1-3.9x, supported by robust return-on-equity of 15-18%, credit growth accelerating to 1.7x nominal GDP, and non-performing assets at historic lows—creating a rare combination of cyclical momentum and structural profitability that justifies multiple expansion.

The cement sector offers significant re-rating potential as production volumes accelerate and operating margins recover from cyclical lows of 15-16% to normalized levels of 18-20%, driven by normalized input costs and government infrastructure spending expected to accelerate in the second half of FY27, providing investors with both volume growth and margin expansion tailwinds simultaneously.

Metals and capital goods benefit from a multiyear infrastructure and fixed capital formation tailwind, with gross fixed capital formation growing 11% in Q4 FY26 and government spending set to pick up further, positioning these sectors favorably for sustained medium-term exposure as India’s infrastructure cycle remains in early innings.

Collectively, these three sectors offer a mix of cyclical recovery, valuations with upside potential, and structural tailwinds that differentiate them from more challenged segments, though execution on government spending and input cost normalization remain critical variables to monitor.


How should a ₹10,000 monthly SIP (moderate risk, 10-year horizon) be allocated?
Recommended Allocation: For a 10-year SIP, split ₹10,000 monthly across three fund categories: 40% (₹4,000) in largecap equity funds and hybrid funds for stability and consistent returns, 40% (₹4,000) in mid/smallcap funds to capture higher earnings growth potential, and 20% (₹2,000) in quality bond funds yielding 7% for portfolio protection. Largecap and hybrid fund combinations provide downside cushioning, while mid/smallcap funds offer exposure to faster-growing companies that can compound wealth over your 10-year horizon despite slightly elevated valuations. The debt fund allocation acts as a safety net and creates opportunities to redeploy into equity funds during market downturns, allowing you to buy more units when prices fall. This fund-based allocation suits moderate-risk investors seeking wealth creation while accepting higher volatility from mid/smallcap exposure over a decade.