Time to start building wealth? Vaibhav Agrawal says correction in small and midcaps offers attractive entry points for investors

Time of India

04-05-2025

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Q) Thanks for taking the time out. Markets have been volatile lately, thanks to Trump's tariff talk and geopolitical concerns between India and Pakistan. How are you assessing the situation?
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Q) With India possibly entering a low-interest-rate cycle, what should be the asset allocation strategy for investors in the 30–40 age group?
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Q) What's your view on the Q4 results so far and expectations for the upcoming quarters?
Q) Gold has crossed Rs 1 lakh in the physical market. Is it now more than a safe haven—perhaps even a wealth creator?
Q) What's your outlook on small- and mid-caps for FY26?
Q) After the correction, where are you seeing value in the market?
Q) How are FIIs viewing India? While there's been some buying recently, FIIs pulled out over Rs 13,000 crore from the cash segment this month.
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Q) Have you made any portfolio adjustments to handle volatility from global events like tariffs or geopolitical risks?
In this edition of ETMarkets Smart Talk, we speak with Vaibhav Agrawal, CIO – Alternates (Public Equity) at Motilal Oswal Asset Management Company (MOAMC), who shares his insights on the current market landscape amid rising volatility and global uncertainties.Despite recent swings triggered by geopolitical tensions and macroeconomic headwinds, Agrawal believes this is a great opportunity for long-term investors to start building wealth. The sharp correction in small- and mid-cap stocks has opened up attractive entry points for investors with a strong risk appetite and long-term outlook.He also discusses asset allocation strategies for younger investors, sector outlooks, and how MOAMC is positioning its portfolio to capitalize on India's domestic growth story.Edited excerpts:While macroeconomic and geopolitical developments are causing volatility, several indicators are working in India's favor. Inflation is under control, oil prices are at favorable levels, rate cuts are projected ahead, and the RBI is infusing liquidity. We're also seeing a revival in capex and fiscal support for consumption.In fact, corporate earnings should improve in FY26. Despite global concerns, India's internal economic fundamentals remain solid. We remain constructive over a 6–12 month horizon.The current environment is favorable for equities. Sectors like capital goods, discretionary consumption, and technology are poised to benefit from economic recovery, infrastructure growth, and rising demand.Young investors can afford higher equity exposure. In a low-rate environment, equities are attractive due to their superior long-term return potential compared to fixed-income assets.It's still early in the earnings season, but we believe asset quality concerns have peaked for banks and NBFCs. Credit growth and operating efficiency should drive better results going forward.IT companies, however, may face near-term headwinds due to slower global IT budgets and demand softness across geographies amid ongoing uncertainty.Gold deserves some allocation in a portfolio. But comparisons with equities are point-to-point and must be contextualized.We're in a challenging phase for equities and a favorable one for gold, which skews perception. While gold is benefiting from global uncertainty and low rates, equities still offer higher long-term returns. Investors should balance gold's defensive traits with equities' growth potential.The recent sharp correction has made valuations in quality mid- and small-cap stocks attractive. These stocks often outperform during recoveries as they are more sensitive to domestic demand and infrastructure activity.For long-term investors, this is a great time to accumulate quality names with strong fundamentals and earnings visibility.We find compelling value in sectors like capital goods, electronics manufacturing, and BFSI. Government policies, infrastructure push, and demand for electronics are tailwinds for these industries.Capital goods will benefit from infrastructure momentum, and BFSI from credit growth and financial inclusion trends.India remains a bright spot both in terms of growth and geopolitical positioning. But FII behavior is influenced by multiple global factors—interest rates, currency movements, macro trends—which makes it hard to predict.Despite India's strong fundamentals, FII flows are often governed by relative attractiveness of other markets and global liquidity conditions.Yes, we've tilted our portfolio towards domestic-facing businesses with more predictable earnings and better visibility.By focusing on companies relatively insulated from global volatility, we aim to minimize external risks while still capturing growth from India's robust macro story. This approach allows us to stay defensive without compromising on return potential.