Markets at long-term averages offer comfort; financials, healthcare attractive: Prashant Khemka

Indian equity markets may have delivered muted returns over the past year, but current valuations are offering investors a far more comfortable entry point, according to Prashant Khemka, Founder of WhiteOak Capital Group, which manages assets worth nearly $10.8 billion.

Speaking on CNBC-TV18’s Editors’ Roundtable, Khemka said the market is now trading close to its long-term average valuation, making the risk-reward more favourable after a prolonged time correction.

“Over the last 10 years, the market has traded at around 20–20.5 times earnings, and we are right in line with that. Average is not a bad time to get in. In fact, average is a very good time to invest,” he said.

Khemka noted that the market has gone largely sideways for nearly 15 months and is around 5% below its peak. Compared with most of the past year, he believes this is a better phase for investors to deploy fresh capital.

Khemka acknowledged that India has faced tougher competition for global capital in 2024, especially with strong performance in markets linked to the artificial intelligence theme, such as South Korea and China. India has lagged emerging markets by nearly 30%, prompting some investors to question the country’s relative appeal.

However, he argued that India has historically been a follower, not a first mover, in new technology cycles. “India was late to the dot-com boom and even the mobile revolution, but that never stopped it from being the best-performing emerging market over the last 25 years,” he said.

He added that if the AI trade were to see a correction globally, India could relatively benefit due to its limited exposure to that theme.

While earnings growth has slowed to mid-single digits over the last 12–18 months, Khemka said this should be seen in context. After a strong post-COVID surge, earnings are now reverting to trend.

“Over long periods, earnings growth has broadly tracked nominal GDP growth at low double digits. A reasonable expectation of low double-digit earnings growth over the next three to five years looks achievable,” he said, adding that market returns should reflect this normalisation.

Financial services remain the largest allocation in WhiteOak’s portfolios. Khemka said the sector is currently facing peak pessimism, particularly in pockets such as unsecured lending and microfinance, which often creates investment opportunities.

“Our sense is that we are near peak stress on asset quality. From here, things should improve,” he said. He pointed out that several NBFC IPOs struggling this year is a sign that negativity towards the sector may already be priced in.

Indian financials, he added, now offer a strong combination of relatively compressed valuations, solid asset quality, and steady growth compared with peers in other emerging markets.

Among less-talked-about sectors, Khemka highlighted healthcare as an area offering attractive long-term opportunities. “It’s not a flashy sector, it’s complicated, and it doesn’t see hyper growth, which is exactly why it often stays out of the limelight,” he said.

WhiteOak is overweight on pharmaceuticals, hospitals, diagnostics and CDMO businesses, even as financials remain the largest holding due to their size in the market.

For the entire discussion, watch the accompanying video