Should investors increase allocation to small, midcaps? Motilal Oswal Private Wealth explains why

Motilal Oswal Private Wealth reiterated its neutral stance on Indian equities while further increasing its overweight position on mid and smallcaps as they carry higher exposure to high-growth sectors, and the valuations have improved meaningfully.

In its latest Alpha Strategist July 2026 report titled “The Changing Formation”, the wealth management firm highlighted that global long-standing market relationships are undergoing a shift. A stronger US dollar is no longer weighing consistently on emerging markets, while Wall Street’s equity gains are broadening beyond a handful of large technology stocks.

The most significant shift during the month of June came from crude oil, which sharply corrected by around 30% before stabilising, easing inflationary pressure, strengthening India's external account and pulling domestic bond yields lower, Motilal noted. With economic cycles turning shorter and sector leadership rotating faster, the report suggests that investors need a more flexible and actively managed approach to portfolio construction.


What is the suggested portfolio allocation?
In this context, Motilal Oswal Private Wealth’s suggested portfolio allocation is 40% hybrid or large caps, 50% mid and smallcaps, and 10% global exposure. Notably, this marks a 10-percentage point increase in the mid and smallcap allocation from earlier. The broader market’s exposure to high-growth sectors such as capital goods, manufacturing, renewables, and healthcare compared to the Nifty 50, along with the sharp improvement in valuation over the past 18 months were listed as the reasons for the optimism in the small and midcap space.

For hybrid strategies, Motilal Oswal Private Wealth recommends lump sum deployment at current levels, while pure equity-oriented strategies should be staggered given prevailing uncertainties, with any meaningful correction used as an opportunity for more aggressive deployment.



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Motilal Oswal Private Wealth on bond investments

Coming out of the purview of the stock market, the wealth management firm highlighted that RBI's calibrated measures to support capital inflows, along with lower crude oil prices, have helped stabilise domestic bond markets and moderate government bond yields to 6.7-6.8%. However, it expects yields to remain broadly range-bound, while not ruling out the possibility of periodic volatility from geopolitical developments or inflation risks.

“Motilal Oswal Private Wealth continues to recommend accrual-oriented strategies across the credit spectrum as the core allocation, and income-generating assets such as InvITs, arbitrage funds, and conservative SIF strategies as complements to core allocation,” it said in a press release.

Motilal Oswal Private Wealth on precious metals
Motilal Oswal Private Wealth remains neutral on precious metals, with gold as the preferred core holding amid continued central bank buying and its role as a currency and geopolitical hedge. The wealth management firm, however, believes that silver, which is supported by strong industrial demand and a persistent supply deficit, warrants only measured, selective exposure due to its higher volatility.

Notably, gold and silver prices have sharply retreated from their early 2026 highs. However, precious metals have been recording some gains this week ahead of the Fed's meeting outcome.

What management says
India’s macroeconomic landscape is turning distinctly favourable, Ashish Shanker, MD & CEO of Motilal Oswal Private Wealth, noted. He highlighted that the sharp drop in crude oil during June eased inflationary pressures and pulled domestic bond yields lower. Further, shorter economic cycles, faster change in sector leadership, and greater return dispersion are reshaping investment opportunities, he said.

“Much like a football manager who adapts formations to opponent or changing match conditions, investors also need to embrace "The Changing Formation" by adopting greater flexibility and agility in portfolio construction. Active management is increasingly becoming more critical to capture emerging sources of alpha,” Shanker said.

Motilal Oswal Private Wealth’s Chief Investment Officer Sandipan Roy meanwhile noted that the broader market presents attractive opportunities as market breadth improves and leadership broadens beyond benchmark constituents. “We have increased our overweight to mid and small caps given their stronger representation in high-growth, new-economy sectors and the improvement in valuations. Our approach remains disciplined: lump sum deployment in hybrid strategies, staggered allocation in pure equity, accrual-focused fixed income, and gold as the core precious metals holding, building portfolios resilient enough to adapt as market conditions change,” he said.

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