The Nifty can deliver a 10% to 15% return from current levels. Value screens alone will not capture it.
Mihir Vora, Chief Investment Officer at Trust Mutual Fund, is steering capital directly into earnings expansion rather than chasing depressed multiples. A recent market correction swept excess froth from headline benchmarks, resetting risk-reward profiles across domestic manufacturing and credit. The investment framework bypasses top-down asset allocation to focus on pure bottom-up cash-flow generation across financials, defence suppliers, contract development and manufacturing organisations (CDMOs), power transmission, and automotive component makers.
"I would now place both of them at par," Vora stated regarding private and public sector lenders, noting that traditional valuation spreads have narrowed as balance sheets clean up and systemic credit expansion steadies.
Private sector lenders historically commanded steep valuation premiums by generating 25% balance sheet growth while state-owned peers lagged at 12% to 13%. That gap vanished. Both segments now print loan expansion between 12% and 15%, with select lenders reaching 16%. With credit quality clean across both camps, the justification for divergent multiples collapsed.
Non-banking financial companies (NBFCs) display an identical valuation reset. While shadow banks continue to outpace traditional banking loan books, recent equity corrections compressed their trading multiples to historical averages. Trust Mutual Fund is pairing these credit bets with market infrastructure operators—accumulating equity stakes in stock exchanges, online brokerages, and asset management companies that capture volume surges as domestic participation rebounds.
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|---|---|---|---|---|---|---|---|
| Private Sector Banks | ~25% Annual Growth | 12% to 15% (Peak: 16%) | Valuation parity with state banks | ||||
| State-Run (PSU) Banks | 12% to 13% Annual Growth | 12% to 15% Annual Growth | Asset quality clean; valuation parity | ||||
| Defence Contractors | Lumpy, early-stage order cycles | 30% to 50% Projected Revenue CAGR | Global export push; 3-5x earnings expansion | ||||
| CDMO Manufacturers | 1/20th to 1/50th of Chinese scale | Multi-year global supply shift | Capitalising on China's 60-80% market grip |
A private capital expenditure revival is underway across data centers, textiles, chemicals, pharmaceuticals, and aerospace. But private defence manufacturing sits at the front of the queue.
Balance sheets in the sector look optically expensive. Trailing price-to-earnings multiples frequently cross 100 times. Yet Vora argues that screening solely on trailing metrics blinds portfolio managers to structural earnings acceleration. Top-tier private defence contractors possess the addressable runways to compound revenues at 30% to 50% annually over the next five years.
A triple-digit trailing multiple contracts rapidly when net earnings multiply three to five times across a thirty-six to sixty-month horizon. For this reason, Trust Mutual Fund prices defence firms through the price-to-earnings growth (PEG) ratio instead of an isolated price-to-earnings multiple. Earnings lumpiness—long the bane of early-stage domestic defence players—is slated to taper.
My guess is that over the next two to three years, as these companies expand their product baskets and reach a certain scale, that lumpiness will reduce, especially because they have also started exporting," said Vora.
Market Context: The tactical pivot toward the PEG ratio reflects a broader institutional divide across Dalal Street. While conservative desks retreat to defensive, low-multiple value plays amid global geopolitical jitters, aggressive fund managers are using recent small-cap price corrections to secure high-growth capacity builders that can absorb capital expenditure cycles without balance-sheet strain.
Pharmaceutical and specialty chemical manufacturing constitutes the second high-conviction pillar. CDMOs—alongside defence, power transmission, and automotive ancillaries—drove the outperformance of Trust Mutual Fund's small-cap portfolio over the preceding two years. The global thesis rests on vendor diversification away from Beijing.
Currently, Chinese contract manufacturers control 60% to 80% of global output across vital active ingredients and chemical building blocks. Indian producers remain fractional by comparison, manufacturing between one-twentieth and one-fiftieth of the output delivered by their Chinese competitors. That scale differential gives Indian operators a multi-decade runway to capture market share.
The portfolio strategy treats trailing multiples as secondary to addressable capacity. As global pharmaceutical giants execute de-risking mandates, Indian suppliers with audited manufacturing facilities stand to gain outsized order flows, transforming small-cap balance sheets into mid-cap market leaders as private capital expenditure cycles peak.