He explained that the downside scenario is driven by a combination of earnings downgrades and valuation compression if the macro environment worsens. A rise in crude prices and pressure on the current account could hit growth, forcing analysts to cut earnings estimates, which in turn could pull markets lower.
“If you assume a 10% cut and assume multiples will remain at the current level or slightly moderate to 15 times, you’re looking at Nifty below 20,000. I’ll probably say that are the levels which probably characterise the worst case,” he added.
Despite the recent correction, Garre cautioned that markets are still not cheap, as weak earnings growth continues to limit upside.
He pointed out that the current phase is very different from the post-2021 period, when strong earnings and policy support drove markets higher. Today, growth remains muted and expectations of a meaningful recovery are still pushed further out.
“Valuations, while corrected and maybe even fair, are not cheap relative to the past,” he said.
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However, he also believes investors should look at markets through the lens of the growth cycle rather than rely on historical valuation comparisons alone.
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Among sectors, the IT sector, which has been under pressure due to concerns around AI disruption, appears attractively valued. Current prices imply very low long-term growth expectations, which he believes may be too pessimistic.
“I think it is a bit cheaper than what it should be,” he said, adding that the market is pricing in just about 5–6% earnings growth for IT companies over the long term.
Financials are another preferred space. Garre believes concerns around credit risk are manageable, given the absence of excessive lending in recent years. He expects the sector to remain relatively stable and potentially lead a rebound.
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He is also positive on automobiles and sees utilities as a defensive play in a volatile environment.
On the other hand, he advises caution on highly cyclical or globally exposed sectors, especially given the uncertainty around macro conditions.
For now, Garre prefers sticking with largecaps, noting that while mid- and small-cap stocks have corrected, they are not yet cheap enough to warrant aggressive buying.
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