ETMarkets Smart Talk: Smallcap investors should consider a five-year SIP horizon amid volatility: Sorbh Gupta

Smallcap stocks can offer significant wealth-creation opportunities, but they also come with higher volatility and valuation risks. For investors looking to enter the segment, a long-term approach and disciplined investing are crucial.

In an interview with Kshitij Anand of ETMarkets, Sorbh Gupta, Head of Equity at Bajaj Asset Management Limited, says investors considering smallcap exposure could look at a five-year SIP horizon, depending on their risk appetite and financial goals.

He also explains why market volatility may persist in the near term, where valuations look more attractive, and how investors should approach fresh investments amid global uncertainties. Edited Excerpts -


Q) What is really happening in the market? We have seen couple of good days even when the world was down. Is it the Finance Minister’s comments on taxation which led to the bounce?

A) Markets have been under pressure due to global geopolitical uncertainties and the sharp rise in Brent crude prices. Speculation around a possible reduction in long-term capital gains tax and STT may have supported market sentiment; however, these remain unconfirmed. From a medium-term perspective, the outlook appears reasonable.

The earnings reported so far this quarter have been broadly in line with or better than market expectations. In the near term, global macroeconomic uncertainties and potential government measures to mitigate their impact on the domestic economy may continue to contribute to market volatility.

Q) What will be the biggest driver of Indian equities over the next 6–12 months: earnings recovery, domestic liquidity or foreign investor flows?

A) Earnings recovery appears to be underway, while domestic liquidity remains in surplus following inflows related to Foreign Currency Non-Resident (FCNR) deposits. These factors may provide support to the market.

Going forward, the trajectory of Indian equities will depend, among other factors, on the return of foreign investor flows and an improvement in global risk appetite as global macroeconomic and geopolitical headwinds ease.

Read more: ETMarkets Smart Talk| A ₹25,000 monthly SIP can grow to ₹2.17 crore in 15 years—with a 10% annual step-up: Jeet Marwadi

Q) Are current valuations justified by the earnings outlook, or is the market pricing in too much optimism? Where is the better risk-reward opportunity today—Largecaps, Midcaps or Smallcaps?

A) From a large-cap perspective, valuations are below their 10-year historical average, based on the measures considered. In the mid-cap and small-cap segments, valuations at the index level appear relatively elevated, although select pockets may offer comparatively comfortable valuations.

Q) Global capital has been heavily concentrated in US technology and AI infrastructure. What could trigger the next major reallocation of capital towards India?

A) Over the past two years, a significant amount of global capital has been allocated to US technology and AI infrastructure, including select emerging markets that have benefited from spending in these areas. However, as valuations rise, there is a possibility of some of these investments being reassessed.

A shift in market focus towards broader markets, consumption and related themes could potentially lead to a reallocation of global capital towards India, depending on prevailing market conditions.

Q) Is the investment case for India changing from a consumption led growth story to manufacturing, infrastructure, productivity led growth?

A) India remains a large consumption-driven market, with consumption accounting for ~ 60% of its GDP. Consumption is likely to continue to be an important component of India's growth.

At the same time, manufacturing- and productivity-led opportunities are emerging, supported by investments across sectors such as precision engineering and aerospace engineering. These areas are seeing increased investment and may offer opportunities as they develop. Overall, India's growth trajectory continues to be significantly driven by domestic consumption.

Read more: From CDMO to aerospace: How Vikas Khemani finds India’s next big themes

Q) How could US interest rates, the dollar, cool prices influence India's margin trajectory?

A) Rising US interest rates and bond yields may influence return expectations from Indian equities and other risk assets, potentially affecting foreign investor flows. Rupee stability is another important factor, as sustained depreciation may impact investor sentiment.

Higher crude oil prices may also widen India’s current account deficit and, if not passed on to consumers, put pressure on the fiscal deficit. These factors have contributed to market volatility over the past three to four months.

Q) What is the right strategy for investors deploying fresh money in a volatile market lump sum staggered investments or a systematic investment plan?

A) Investors with a higher risk appetite and the ability to withstand near-term volatility may consider lump-sum investments in large-cap stocks, based on their financial goals and risk profile.

Given the possibility of continued market volatility over the next few months, staggered investments may be an alternative approach. For small-cap investments, a 5-year SIP may be considered, subject to the investor’s risk appetite, investment horizon and ability to tolerate market fluctuations.

Q) Which sectors could lead the next phase of market performance, and which are most vulnerable to earnings disappointments?

A) Large private banks, pharmaceuticals, particularly contract research and manufacturing, and consumer discretionary, led by the auto sector, appear well positioned from an earnings growth perspective and may contribute to the next phase of market performance.

The IT sector continues to face uncertainties, and investors should be selective when investing in IT services companies, as they may be more vulnerable to earnings disappointments following the recent sector rally.

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