Srinivas R. Ravuri backs QSR stocks for a surprise comeback

Srinivas Rao Ravuri, CIO of Bajaj Allianz Life Insurance, sees opportunity in an unlikely corner of the market—quick service restaurant (QSR) stocks. After several quarters of weak growth and sharp underperformance, he believes the segment is poised for a turnaround over the next 12–18 months, offering strong long-term potential.

Edited excerpts from a chat:
How do you see the Indian equity markets shaping up over the next 12–18 months?
The Nifty50 is only marginally positive on a one-year basis and has been among the weaker-performing equity markets globally during this period. This trend has been driven by subdued earnings in FY25, and FY26 is also shaping up to be a relatively lacklustre year, with expectations of only single-digit earnings growth.

That said, the outlook for FY27 and beyond appears more encouraging. We believe the full impact of the monetary and fiscal measures announced in recent months will begin to reflect positively on corporate earnings. Ultimately, equity markets are driven by earnings and, importantly, they are forward-looking in nature.

Against this backdrop, we see a reasonably constructive outlook for equity returns over the next 12–18 months. At the same time, we remain mindful of potential challenges, including the recent escalation in U.S. tariff-related developments. We will also be watching retail flows closely, as they have been the key source of market resilience despite weak earnings. For now, flows continue to be strong despite subpar returns in the last 12 months, but investor conviction could be tested if this correction phase extends for longer.

Many investors found the Q1 earnings season below expectations, with signs of broad-based growth missing. Do you think earnings recovery will come in Q2 or Q3 onwards?
Q1 FY26 earnings were tepid but largely in line with expectations. Large caps delivered high single-digit PAT growth, whereas midcaps registered 20%+ growth, driven by a strong rebound in energy companies’ earnings. Small caps reported a year-on-year decline due to weak performance from lenders in this segment. What concerned us more was the subdued outlook in management commentaries, with very little optimism on future growth.

We expect Q2 earnings to remain weak, driven by multiple factors:

• Postponement of demand ahead of the recently announced GST rate cuts
  
• The impact of higher U.S. tariffs
  
• Softer performance from banks, as the full effect of the June repo rate cut leads to further margin compression
  

However, from Q3 onwards, the outlook turns far more constructive. We anticipate strong momentum beginning October, particularly in segments expected to benefit the most from GST reductions—such as passenger vehicles, two-wheelers, and air conditioners. Banks, too, should see margin support from the phased CRR cut starting in September. A favourable resolution of the tariff issue would be an additional positive catalyst.

In this context, we view Q2 as the likely bottoming-out quarter for corporate earnings, with a strong revival expected from Q3 onwards.

Which sectors do you believe will lead the next leg of market growth, and what’s driving your conviction in them?
We have been constructive on the consumption theme for some time, and the recent announcement of GST cuts further strengthens that view. The scale of the cuts is meaningful—around Rs 1.8 trillion—and the resulting price reductions for certain products could be significant.

In addition, consumer affordability has improved meaningfully, supported first by tax relief in the Union Budget and then by substantial interest rate cuts from the RBI. Taken together, this creates almost a “Goldilocks” scenario for consumption-driven companies, paving the way for broad-based growth acceleration across the sector. That said, we remain mindful of valuations and will continue to assess opportunities on a case-by-case basis.

Pharma is another sector we are positive on, despite headwinds from potential U.S. tariffs. Over the years, Indian pharma companies have built scale and cost advantages that are not easily replicable. The sector has seen a time correction over the past 12 months, despite the earnings boost from a blockbuster drug going off patent in the U.S. Additionally, some Indian companies could be key beneficiaries of the fast-growing weight-loss drug market.

Are there any valuation trends or signals in the current market that investors should be mindful of?
Valuations for large-cap companies remain reasonable, with the Nifty50 trading at about 21 times one-year forward earnings—only a modest premium to long-term averages. In contrast, midcap and small-cap valuations are relatively elevated, supported by expectations of stronger earnings growth compared to large caps over the next two to three years.

Sector-wise, IT valuations have corrected meaningfully, with some large caps now trading at multi-year lows. However, this correction has coincided with an uncertain sector outlook, which explains why valuations are not reverting to mean quickly.

If you had Rs 10 lakh to invest in the market right now, how would you spread it across gold/silver, equities, and debt?
The answer to this question really depends on an individual’s financial situation and risk appetite. Such decisions are best guided by financial advisors who can assess an investor’s overall profile.

Returns from different asset classes tend to be cyclical, making optimal asset allocation crucial for delivering superior returns over economic cycles. At this juncture, between fixed income and equities, we believe equities offer a more favourable outlook. In fixed income, much of the benefit from the rate-cutting cycle already appears to be priced in, whereas equities present a more constructive outlook over the next 12–24 months.

Which sectors do you think are best placed at the moment for the next 1–2 years?
As discussed earlier, among the cohorts of consumption, financials, manufacturing, commodities, and export-oriented sectors, the outlook over the next one to two years appears most favourable for consumption.

Commodities and export-oriented sectors face headwinds from the uncertain global demand environment created by U.S. tariff actions. However, within the export-oriented cohort, we remain positive on pharma companies, as explained above. Manufacturing may not receive the same incremental policy support it benefited from in recent years. In financials, while valuations—particularly for banks—are fairly reasonable, growth has been constrained by low nominal GDP growth, and the recent phase of margin compression following repo rate cuts has further weighed on profitability.

In this backdrop, consumption companies stand out with the most promising growth outlook. That said, valuations in certain pockets are stretched, and investors should remain mindful of this while evaluating opportunities.

Lastly, what’s the one contrarian idea you’d back for the next 12 months?
Quick service restaurant (QSR) companies have delivered lacklustre growth over the past six to eight quarters, resulting in sharp underperformance of the sector. We do have exposure to some of these names and are continuing to hold them, as we see a fair chance of a turnaround in the next 12–18 months.

The QSR segment in India is still at a nascent stage compared to other markets, and despite the recent phase of subdued growth, we believe these companies have a long runway ahead. From current levels, they hold the potential to evolve into strong long-term compounders.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)