Too many IPOs can hurt secondary market returns

Indian markets will not disappoint investors as long as they have realistic return expectations and a longer time frame,

- R Janakiraman, chief investment officer — emerging markets equity — India, Franklin Templeton

R Janakiraman, chief investment officer — emerging markets equity — India, Franklin Templeton, tells Ananya Grover in an interview. He says a large supply of IPOs and geopolitical tensions are some of the risks. Excerpts:

After the recent corrections, Nifty is back to its peak levels. How will you describe the current market?

It is a consolidating market. From the demand perspective, after Covid-19, the surge in the pent-up demand peaked towards late 2023. In the next one year, it started to gradually slow down and probably the trough of the slowdown happened in September 2024. Now, there is a gradual recovery. Consolidation is in the form of earnings also. We saw a slowdown in earnings in FY25. To some extent, that slowdown was triggered by a slight weakness in government spending, which is now on the path of recovery.

Another way to see the market is the broad market return, represented by the NSE 500. One or three-year index returns are not very far away from the underlying earnings growth. So, we are not starting from a point where the PE ratio is at a high level, which puts a drag on prospective returns. Moderate earnings growth is expected over fiscals 2026 and 2027. On the back of that, you should see equity returns which are almost in line with earnings growth. That is what I expect for at least for the next one year.

Are valuations in the mid- and small-cap space expensive?