In a strategic shift, Helios Capital is pivoting towards mid and smallcap stocks, citing their attractive valuations on a price-to-earnings-to-growth (PEG) basis. Despite appearing expensive on a standalone price-to-earnings (PE) metric, these segments offer significant growth potential, making them more appealing than largecaps, which are deemed most expensive when growth is factored in.
The latest earnings data underscores this trend, with smallcap companies reporting a remarkable 41% growth in Q4 FY26 year-on-year, followed by midcaps at 28%. In contrast, the Nifty 50 largecaps posted a modest 6% growth for the same period. This disparity highlights the growth opportunities in smaller market segments.
Helios Capital's portfolio adjustments reflect this strategic pivot. The firm exited positions in Tata Motors' commercial vehicle segment and Titan in May, driven by concerns over rising crude oil prices and a reassessment of Titan's growth prospects. On the acquisition front, Helios added Adani Enterprises for its solar energy ventures, Dixon Technologies for its outsourcing potential, and CAMS to capitalize on India's burgeoning mutual fund industry.
“Wherever the correction has happened, we have been picking up the mid and smallcaps. We are moving away from largecaps and getting into new names in these segments wherever possible.”
Dinshaw Irani, Helios Capital
Certain sectors remain off Helios's radar, including metals, US-facing pharmaceuticals, consumer durables, and largecap banks. The firm cites China's dominance in metals, the challenges of expiring drug exclusivities, and limited growth in consumer durables as reasons for avoidance. Largecap banks have also been partially trimmed as the focus shifts to growth sectors.
In healthcare, Helios favors hospital stocks over pharmaceutical companies, viewing quality healthcare capacity as a scarce resource with rising demand driven by increasing per-capita GDP. While contract development and manufacturing organizations (CDMOs) and domestic pharma names are included, hospitals form the core of Helios's healthcare strategy.
Background
The shift towards mid and smallcap stocks comes amid a broader trend of investors seeking growth opportunities in the Indian market. With largecaps showing limited growth potential, smaller segments offer a more dynamic investment landscape.
As the Indian market evolves, investors should monitor the performance of mid and smallcap segments closely. The potential for growth in these areas, coupled with strategic sector allocations, could offer substantial returns in the coming quarters.
