Daily Voice: Alpha Capital’s Mukesh Jindal sees 7%+ growth within reach if oil prices cool

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Mukesh Jindal, Senior Partner at Alpha Capital agrees with the RBI's full year growth direction. But over 7 percent growth is the good case if oil cools, he said, adding the growth around 6.5 to 6.8 percent can be possible.

In the base case, he sees the Nifty 50 at around 24,000-25,000 levels only if the September-quarter numbers are decent and crude stops rising. A new high by March is possible but not the plan, he said in an interview with Moneycontrol.

According to him, US bond yields at 6 percent, if it comes, is not a reason to exit Indian equities. Domestic money is large enough to stop a collapse, he said, adding

Do you believe bank stocks are approaching fair valuations at current levels?

My view is they are close to fair. Not cheap across the board.

If you look at the numbers, the Bank Nifty is around 1.5 to 1.6 times book, the lowest price-to-book since 2020. Large private banks are near 1.9 times forward book, against a ten-year average closer to 2.5 times. HDFC Bank is an obvious example. SBI is nearer 10 times earnings. On valuation alone, the sector is no longer expensive.

I would not call it a bargain. Credit is still running near 19 percent, but a good part of the deposit growth is term money and FCNR, not cheap savings balances. Margins are still slipping. The RBI has just taken the repo to 5.5 percent, so the next few quarters are not a margin-expansion story. Asset quality is fine. Funding cost is the issue.

For a family portfolio I would add the banks with a deposit franchise and a clean book. I would not load up on every lender just because the multiple has come down.

Are the NBFC and real estate sectors looking attractive from an investment perspective?

Selectively, yes. As for sectors, I would be careful.

NBFCs have corrected, and valuations are near the lows of the last few years if you leave out Covid. Growth is still there and asset quality has not broken. A 25 basis point hike does not kill a lender that has liquidity and a real franchise. It does hurt the ones living on cheap wholesale money. I would rather own a lender, or a vehicle financier with a sticky book, than the whole NBFC index. Housing finance has done little for two or three years, so a few of those are interesting. Microfinance I would still treat as a credit-cost trade.

Real estate is similar. Listed developers are still taking share. Pre-sales in the better names are growing in the mid-teens, and prices in the top cities are still ahead of inflation. Volumes, though, are barely up. Property stocks do not like a rising cost of money even when sales hold up. So I like a handful of developers with clean balance sheets. I would not add a broad property bet just because the stocks have fallen.

How do you interpret the provisional business updates announced by Indian companies ahead of the September-quarter earnings season?

I read them as a volume check, not an earnings check.

The bank updates are strong on the face of it. Axis Bank has reported advances up about 23 percent and deposits up about 21 percent. Bank of India is in the same zone. That tells you demand has not collapsed. It does not tell you what the profit will be. Look at the mix. At Axis Bank, savings balances grew about 11 percent, term deposits about 27 percent, and a large piece of the deposit number is FCNR money. That supports the balance sheet. It is not cheap funding. So a big advance number can still come with a softer margin.

Outside banks, Tata Steel’s India business hitting a record 6.2 million tonnes, deliveries up 7 percent, is a cleaner signal. Someone is still buying steel. Price is a separate question.

I would not trade the provisional print. The earnings release is what settles the argument.

What are your expectations for Q2 earnings, particularly amid elevated crude oil prices and the potential impact of El Niño?

The quarter can look better than the year.

A few houses are talking about Nifty earnings up about 27 percent in the September quarter, the best in several years. A large part of that is financials, metals, telecom, and a rebound in the oil marketing companies after a very bad June quarter. Strip out those oil companies and the number is still strong, around the mid-20s. So I am not dismissing the quarter. Demand, on the provisional updates, has not fallen over.

I am not underwriting that as the run-rate. The Indian crude basket was well above $110 a barrel in September and has been near $120 a barrel in early October. Marketing margins recovered because crude dipped in July and pump prices were raised earlier. If crude stays here, that relief does not repeat.

El Niño is the other problem. The monsoon has been short by something like 15 percent, and food inflation is the channel that hits staples and rural lenders. The RBI already has inflation at 6 percent in the December quarter.

So Q2 can print well. I would not treat one good quarter, flattered by the oil-marketing rebound, as the full-year story.

Do you agree with the RBI’s GDP growth forecast of 7.1 percent for FY27, despite prevailing external headwinds?

I agree with the direction.

The upgrade is not invented. Q1 came in at 7.8 percent, above what the RBI itself had pencilled in. Consumption and investment held up, and services exports are still doing the work. So 7.1 percent is a fair reading of what has already happened, plus a hope that it continues.

The hope is the part I would mark down. In the same meeting the RBI raised its inflation forecast to 5.2 percent, took the repo to 5.5 percent, and said the next move is a hike or a pause. That is not the backdrop in which you also assume growth accelerates. The Chief Economic Adviser has already said that oil near $130 a barrel for a few quarters could pull growth toward the mid-6s. We are not at $130 every day, but the Indian basket has been close to $120. El Niño is a second hit, through the rabi crop.

I would plan around 6.5 to 6.8 percent. Seven-plus is the good case if oil cools. It is not the number I would build a portfolio on.

Would a rally in US bond yields towards 6% pose a significant risk to Indian markets?

Yes. It would be significant but will not be a crisis by itself.

The US 10-year is already around 5.25 percent. Six percent is not a fantasy if the fiscal deficit stays large and oil keeps the Fed nervous. Higher US yields raise the discount rate on every emerging-market equity, pull money back into Treasuries, and usually come with a stronger dollar.

We have already seen the movie at 5 percent. Foreign investors have sold close to Rs 3 lakh crore this calendar year. The India–US 10-year spread is near 200 basis points, about half its long-term average. There is not much cushion left.

What I would not do is treat 6 percent as the end of the Indian market. Domestic money is large enough to stop a collapse. The damage would show up in the multiple, in the rupee, and in rate-sensitive pockets — NBFCs, real estate, and long bonds. For us, that is a reason to keep some dry powder. It is not a reason to exit Indian equities. I do not have 6 percent as my base case. I do have it as a risk I am not willing to ignore.

Do you believe the market is unlikely to reclaim its record highs by the end of FY27?

Unlikely, yes. Impossible, no.

The January high was 26,373. We are around 22,400 today. That is roughly 15 percent below the peak, with five and a half months left in the fiscal year. Earnings can do some of that work. They will not do all of it unless the multiple also expands, and multiples do not expand when oil is near $120, the RBI has just started hiking, and foreigners are still selling.

BofA has turned positive and talks about 26,200. That is a recovery case, and it needs oil and US yields to behave. I would put the base case closer to a grind back toward 24,000–25,000 if the September-quarter numbers are decent and crude stops rising. A new high by March is the good case, not the plan.

For families, you do not need a new high to make money from here. You need to own the parts of the market that are already at fair value and let earnings do the work.