Rakesh Vyas, CIO & Portfolio Manager at Quest Investment Managers, asserts that despite near-term inflation concerns, India's earnings outlook remains strong. In a conversation with ETMarkets, Vyas highlights the attractiveness of selective mid- and small-cap stocks post-correction and emphasizes the importance of active stock selection for generating alpha.
The Indian markets have faced pressure due to geopolitical uncertainties and rising crude oil prices, which have impacted June-quarter margins. However, Vyas believes these pressures are transient, with domestic demand indicators such as automobile sales and bank credit growth remaining robust. He views the recent market correction as a temporary risk aversion rather than a fundamental weakening of earnings prospects.
Valuations, particularly in small- and mid-cap companies, have become more reasonable after the correction. While June-quarter results have shown resilience, margin pressures may persist due to rising input costs. Nonetheless, Vyas expects corporate earnings to improve significantly over the next 12–24 months, driven by strong bank credit growth, industrial demand, and consumption.
“The immediate pressure has come from renewed geopolitical uncertainty, the spike in crude oil prices and some apprehension around the impact of higher input costs on June-quarter margins.”
Rakesh Vyas, CIO & Portfolio Manager at Quest Investment Managers
In building a fresh portfolio, Vyas recommends a diversified approach with a focus on mid- and small-cap companies, which offer higher earnings growth and alpha potential. Large caps provide stability, but selective mid- and small-cap stocks present attractive opportunities for profit growth.
Vyas is overweight on consumer discretionary, power transmission and distribution, and manufacturing sectors, citing opportunities in premiumisation, renewable energy, and export-oriented businesses. He remains selective in IT services, focusing on mid-sized companies with growth potential.
The biggest risk to Indian equities, according to Vyas, is a prolonged geopolitical conflict that keeps crude oil prices elevated, affecting inflation and corporate margins. However, he believes the current situation is transient and does not alter the medium-term market outlook.
Background
The Indian stock market has been experiencing volatility due to geopolitical tensions and fluctuating crude oil prices. These factors have raised concerns about inflation and corporate margins, impacting investor sentiment. However, underlying domestic demand remains strong, suggesting resilience in the market.
As the market navigates these challenges, investors should focus on identifying companies with strong profit growth potential rather than chasing popular themes. This approach will be crucial for generating sustainable returns in the coming years.
