Midcaps have good investment options left, per this MD

RAPID FIRE
What is the biggest lesson the market has taught you?
Market will always be dynamic, and, therefore, one must approach it with a consistent philosophy and mindset.
What is your personal asset allocation right now?
70% is in listed equity, 15% in real estate, and the rest is split between commodities and unlisted equity.
If you were to meet Warren Buffett, what would you ask him?
I would ask how he has managed to stay so sane and grounded throughout his career.
If you were the Sebi chief for a day, what’s the one policy change you would make?
Fast-track the process for resolving longpending cases as prolonged regulatory proceedings erode investor confidence.
What investment tip would you want to give your younger self?
Stay the course. Don’t worry so much. It always gets better.

The Nifty 50 index has bounced back by 15% since April 2025, after a 15% correction between September 2024 and March 2025. What is your assessment of the current market movement?
The domestic equity markets are discounting most of the positive triggers and are optimally priced at a broader level. Therefore, the investors who are looking to invest in a broader market should wait for the June 2025 quarter results to gain clarity on the reliability of India’s corporate growth trajectory. However, they can take advantage of any spike in volatility or short-term corrections (due to the worsening of the geopolitical scenario) as such corrections will create tactical buying opportunities.

Large caps or most of the Nifty 50 stocks are growing in single digits or early double digits, but are valued at 15-20 times their estimated earnings. Though exciting opportunities are not available in the large-cap space, a lot of good opportunities are available in the mid-cap space, even at the current levels.

You seem bullish on mid caps, but their valuations appear stretched. The Nifty Midcap 150 index is currently trading at over 50% premium to the Nifty 50 in terms of price-to-earnings ratio (PE). What is your view on this?
There is a reason for the premium valuation. Most of the constituents of the Nifty Midcap 150 index are high-quality stocks and quality is never cheap. Investing in these companies is akin to betting on India’s growth story. Despite trading at steep price-to-earnings multiples, a lot of companies in sectors such as cables and wires, power, and consumption in the mid-cap space are offering promising growth potential.

I wouldn’t be too flustered by the index level valuations. If one invests for the long term and the growth rate in these quality mid-cap names sustains at 15% or more, it still makes a lot of sense. In other words, investing in such high-growth companies even at the current valuations will deliver decent returns over time.

Besides, the valuation froth that was visible in July-August last year has moderated after the market correction. This provides a good enough reason to bet on high-growth and high-quality mid-cap stocks.

Percentage of PMS schemes that outperformed the market benchmarks
Percentage of AIF schemes that outperformed the market benchmarks

The Nifty 50 earnings moderated significantly in 2024–25 compared to 2023–24. What are your expectations for 2025–26?
The earnings growth may not be very impressive at the broad index level (Nifty 50) because sectors like IT and banking, financial services and insurance, which have significant weightage, are expected to register moderate growth. However, compared to 2024-25, the performance of corporate India in 2025-26 will be better as it will be supported by rising government spending and a pick-up in private sector capex. Every fundamentally strong company is expected to report decent growth rates. The question is no longer whether they will grow, but rather how much they will grow.

Besides, analysing performance using the Nifty 50 index may not reflect an accurate picture of the overall earnings growth. This is because the Nifty 50 index doesn’t adequately represent the full breadth of India’s market, and the sectoral representation remains limited. Moreover, the high-growth mid-cap stocks are ignored if one considers the Nifty 50 as the only barometer for assessing performance. It is better to consider the Nifty 200 or the Nifty 500 indices, which are more diversified across sectors, for analysing performance or investment decisions.

With 2025–26 expected to outperform 2024–25, which sectors do you believe will drive growth and which ones are likely to lag behind?
Making a broader sectoral assessment, without limiting it to the Nifty 50 or Nifty Midcap indices, some of the sectors that are expected to deliver strong performance include power, NBFCs, defence, chemicals, and travel and tourism. The sugar sector also looks interesting due to supply shortage. On the other hand, the IT sector is expected to lag behind. It is a very different industry from what it was in the early 2000s. The earlier growth drivers have shifted and it’s not yet clear what will drive the next leg of growth.

If you had to invest Rs.10 lakh today for a horizon of, say, one to two years, where would you prefer to allocate the capital? Why?
I would prefer a diversified approach that combines growth and safety, and will invest across diversified equity schemes and high-quality private credit. In addition to this, a tactical exposure to silver ETFs, a segment where most investors have negligible exposure, can add meaningful diversification. Furthermore, defence ETFs provide a very interesting thematic opportunity.

Following the recent RBI rate cut in June 2025—50 basis point repo rate and 100 basis point CRR cut— which fixed income strategy do you think suits investors best in the current environment?
The duration strategies have performed well in the recent past and the investors who were positioned correctly in duration funds have seen strong mark-to-market gains. Though duration has largely played out after the rate cuts, those who would still like to position themselves here can consider five-year duration strategies. This is because five years is neither too short, nor too long, and it helps smooth out the impact of any short-term spikes. The general tendency of the interest rate trajectory will be downward, and will be supported by India’s strong economic growth prospects, growing businesses and controlled inflation.

Moreover, there’s a strong case for investors to consider locking into high-quality private credit strategies. Such opportunities don’t come very often and may not last forever as the rate environment evolves. However, investing in high-yield bonds or securities without professional help is not advisable for most investors as it requires a deep understanding and risk assessment. Instead, accessing credit through professionally managed vehicles, such as debt PMS or credit-focused AIFs (alternative investment funds), will prove more effective.

Can you provide some insights into the investment strategies employed by Sundaram Alternate for its equity and debt schemes?
For the debt PMS, we invest only in listed debt securities. This provides a significant comfort factor to investors as these instruments are publicly traded and more transparent than unlisted credit. Secondly, we consider financial companies and MFIs. These entities often benefit from credit rating upgrades, which enhance the portfolio’s return beyond the fixed yield. Thirdly, we continue to strengthen our underwriting practices, which enable us to develop performance-oriented strategies. On the equity side, we focus on four themes that act as our investment foundation. These include consumption, manufacturing, financial services, and ‘phygital’ (like Zomato). In these themes, we consider businesses that can grow faster than India’s nominal GDP. We prefer stocks with a good return on capital and assess their governance, dividends, cash-flow consistency, and debt levels.

Which alternative assets are worth exploring at this juncture?
Private credit is worth exploring. We see investors with disproportionate exposure to equities, but there is a significant gap when it comes to credit, which includes real estate, infrastructure and structured credit. However, investors must look at the quality, conviction, governance and vintage of platforms that are offering private credit.

Commodity ETFs is another area worth exploring. I believe the commodity rally is just beginning and investors are significantly underinvested in this space, whether through ETFs or listed stocks. If the world moves into a high-inflation phase, particularly in the US, the commodities will perform well. In the commodity space, gold, silver, copper, zinc and aluminium are likely to do well. While a pick-up in industrial activity will support silver, supply shortage is expected to aid zinc prices. The ongoing geopolitical tensions will continue to support gold prices.

Private credit is risky. We’ve seen how Franklin Templeton India mutual fund was hit. Though private credit has shifted to PMS side and is only available to high and ultra-high net worth individuals, risk in the product remains high. Can you mitigate this risk?
PMS offers professionally curated, structured, well-researched, and actively managed exposure to private credit, something that individual investors would find difficult to replicate on their own. If accessed through well-managed platforms, such instruments offer a structured and risk-managed option to capture yield in a moderated rate environment.

You are very bullish on private credit, but have not mentioned private credit in your personal asset allocation. Is there any reason for not including it in your asset allocation?
I intend to invest in it shortly. I’m very convinced about the product.