Nifty could deliver about 50% returns over the next three years if earnings and valuations play out as Dalal Street’s star stock picker Prashant Jain expects and his PMS firm 3P Investment is already tilting towards small and midcaps to capture that upside.
Arguing that India’s macro challenges are now behind us, with all four headwinds—FDI repatriation, FPI selling, gold imports and high oil—starting to recede simultaneously, Jain expects Nifty returns of 14–15% CAGR, translating into cumulative gains of 45–50% over the next three years. This forecast rests on two pillars—a low‑teens compound growth in earnings and a modest re‑rating in valuation multiples.
“The economy, earnings, and markets have shown resilience in the face of adversity, valuations including premium over EMs have normalised, and equity ownership has shifted into stronger hands. With the macro environment now turning and earnings momentum intact, we are constructive on future returns,” he told investors in a newsletter.
After a period of consolidation, the Nifty’s one‑year forward PE has corrected by about 15% from its peak, now broadly in line with its 10‑year average. India’s valuation premium over other emerging markets has also normalised to around 74%, which Jain views as justified given the country’s large economic size, higher and less volatile growth, broader markets and strong domestic flow support. His three‑year Nifty target assumes that the index’s PE can revert to its pre‑war level of about 19.5 times, provided earnings grow at a low‑teens CAGR.
Live Events
ly, the market has already absorbed heavy foreign selling with limited price damage. Despite record FPI outflows, the Nifty is only about 7% below its September 2024 peak, thanks to powerful domestic inflows. Equity ownership has shifted into “stronger, longer‑term hands”, with FPI ownership of Indian equities now at a 15‑year low and below domestic ownership. In Jain’s view, that leaves the market better placed for upside once global liquidity rotates away from the narrow AI trade and back towards broader emerging‑market stories.
Why Jain is bullish on small and midcaps
3P India Equity Fund 1 was launched in May 2023 and has completed three years, delivering annualised returns of about 19% since inception. Over this period, it has outperformed the Nifty 50 and Nifty 200 by 39% and 25% respectively, helped by a deliberately defensive stance during the rich‑valuation phase of 2024. The fund cut small‑ and mid‑cap (SMID) exposure and trimmed active bets versus the Nifty 50, cushioning performance in a flat‑to‑down market.
That stance is now changing. “We also see value in select SMIDs,” Jain writes, adding that the fund plans to “gradually increase active share and SMIDs exposure as we identify new opportunities.” As of June 30, 2026, the fund’s portfolio is tilted towards economically sensitive sectors—overweight banks, automobiles, consumer services, insurance and pharmaceuticals—while remaining underweight energy, materials, software & services and utilities. Large caps still dominate with roughly 78% weight, but smallcaps already account for nearly 18% of the portfolio, indicating a willingness to move down the market‑cap curve as macro risks abate.
The fund’s sectoral calls mirror its broader top‑down view. Accelerating credit growth and an improving FY27 outlook justify a sizeable overweight in banks, which also carry a large weight in the Nifty. Consumer‑linked segments such as autos and discretionary services stand to benefit from GST cuts, lower interest rates and rising per‑capita incomes above USD 2,000, supporting volume and consumption growth. On technology, however, Jain is tactically cautious: while he sees it as “premature to draw firm conclusions” on long‑term AI impact, he notes that Indian IT stocks are trading at roughly 70% premiums to US peers, warranting an underweight for now.
Pessimism, AI mania and the India trade
Jain’s letter argues that market pessimism toward India likely peaked in March, when FPIs sold a record $13 billion of equities in a single month and global investors chased AI‑exposed markets such as the US, South Korea, Taiwan and Japan. AI‑related subsectors now account for about 70% of global market gains year‑to‑date, an even narrower concentration than at the height of the dot‑com bubble when beneficiary sectors contributed 60% of the advance. With India offering limited pure‑play AI exposure, it became a convenient sell to fund those trades.
Jain expects this phase to be temporary. As with previous technology revolutions, he believes the AI boom will eventually mature and its “outsized gains will normalize.” Once global markets mean‑revert from this narrow leadership, India’s relative resilience, normalised valuations and strengthened domestic ownership base could draw foreign flows back into Indian equities. Quoting Benjamin Graham, the letter reminds investors that “in the short run, the market is a voting machine, but in the long run, it is a weighing machine”–a nudge to focus on earnings and fundamentals rather than near‑term sentiment.
(You can now subscribe to our ETMarkets WhatsApp channel)
(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
...moreless
(You can now subscribe to our ETMarkets WhatsApp channel)
(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
...moreless
Why is the price of silver falling? The answer: It has cousins. Part 2 – The maternal cousin
Why deficit rain hits fertiliser, pesticide and seed companies at different speeds
How data-fogged MCA annual report fails to mirror India Inc’s health
NSE, Jio mega IPOs: Why size doesn’t matter, valuations do
What will the NSE IPO price be? Unlisted market deals offer clues.
Akasa aims to be a 226-aircraft airline by 2032, IPO in 2-4 years
1
2
3