Expert view: Anil Rego, the founder of Right Horizons PMS, sees Nifty earnings growth of around 12% CAGR during FY26-FY28E. In an interview with Mint, Rego said smart money is moving to quality businesses with sustainable earnings growth rather than reacting to short-term geopolitical or macro headlines. He also highlighted 10 sectors that he believes can generate alpha in the next 5–10 years. Edited excerpts:
Where is smart money moving amid this gloomy investment environment?
Despite the uncertain global environment, smart money is rotating rather than retreating.
Investors are becoming far more selective and are allocating capital towards businesses with strong earnings visibility, healthy balance sheets and sectors driven by domestic growth rather than external factors.
We are also seeing foreign institutional investors broaden their participation.
While their ownership in some of the larger benchmark stocks has moderated over the past few years, FIIs today own a wider universe of companies, particularly in the mid- and small-cap space.
This suggests that global investors are increasingly looking beyond index heavyweights to identify companies with stronger long-term growth potential.
The earnings outlook also remains supportive. Broad-based earnings are expected at a CAGR of around 12-14% during FY26-FY28E, indicating that corporate fundamentals remain healthy despite near-term macro uncertainties.
So, the message from smart money is clear: the focus is on quality businesses with sustainable earnings growth rather than reacting to short-term geopolitical or macro headlines.
Is it time to rethink our equity investment approach? Would it make sense to cap equity exposure to 50% in the portfolio and increase exposure to bonds and other asset classes?
I don’t think investors should reduce their equity allocation based solely on the current market environment.
In fact, this could be an opportunity to increase exposure to equities, particularly in the mid and small-cap segments, while maintaining one’s overall asset allocation in line with their financial goals, investment horizon and risk appetite.
While geopolitical risks and market volatility have increased, India’s long-term growth story and corporate earnings outlook remain intact.
Consensus expectations continue to point towards healthy Nifty earnings growth of around 12% CAGR during FY26-FY28E, supported by domestic demand and improving corporate profitability.
We see the US tariff threat back now. Should we brace for a prolonged period of stress?
The re-emergence of tariff uncertainty is certainly a risk, but it doesn’t necessarily mean we are entering a prolonged period of stress.
Markets typically react sharply to tariff announcements initially, but over time, the impact depends on the scale of implementation, the duration of the measures and the extent of global retaliation.
For India, the direct impact is likely to vary across sectors, with export-oriented industries facing greater pressure than businesses driven by domestic demand.
At the same time, India’s economy remains supported by strong domestic consumption, government-led capital expenditure and healthy corporate earnings, which provide an important cushion against external shocks.
Rather than making drastic portfolio changes, investors should stay diversified and focus on companies with strong business fundamentals, pricing power and resilient earnings.
Periods of heightened uncertainty often create opportunities to accumulate quality businesses at more reasonable valuations, provided investors maintain a long-term perspective.
Apart from geopolitical risks and Trump tariffs, what are the major risks that investors should not overlook?
Geopolitics and tariffs are important risks, but they are not the only ones investors should monitor.
Investors should also keep a close watch on global macroeconomic developments, including the pace of global growth, inflation trends and any unexpected shifts in monetary policy.
Although the global interest rate cycle appears to have peaked, any delay in policy easing or resurgence in inflation could affect liquidity and market sentiment.
One of the biggest risks remains corporate earnings falling short of expectations, as earnings are the primary driver of long-term market returns.
Investors should also monitor crude oil prices, as a sustained rise can increase inflation, widen India’s current account deficit and put pressure on corporate margins.
Other key risks include currency volatility and any slowdown in domestic consumption or private capital expenditure, which could weigh on business confidence and market sentiment.
While these risks warrant close monitoring, India’s structural growth story remains intact.
Rather than reacting to every headline, investors should stay diversified and focus on businesses with strong fundamentals, resilient cash flows and sustainable earnings growth.
Large-cap valuations have eased. Do you expect earnings growth to support them? Can’t earnings see a late revival because of oil price volatility and the prospects of monetary tightening?
Yes, I believe earnings can support large caps over the medium term.
Valuations have become more reasonable after the recent correction, and if corporate earnings continue to deliver as expected, that provides a strong foundation for further performance.
Current expectations are for Nifty earnings growth of around 12% CAGR during FY26-FY28E, reflecting healthy underlying corporate profitability.
Having said that, the path may not be completely smooth. A sustained rise in crude oil prices could increase input costs, fuel inflation and weigh on corporate margins.
If inflation remains elevated, central banks may have less room to ease monetary policy, which could keep interest rates higher for longer. These factors could delay, rather than derail, the earnings recovery.
Overall, while near-term volatility is possible, large caps are well placed to benefit as long as earnings remain resilient and macroeconomic conditions stay broadly supportive.
Investors should focus on companies with strong balance sheets, pricing power and consistent earnings delivery rather than trying to time short-term market moves.
Beyond equities, which asset classes are becoming increasingly important for HNIs to generate long-term risk-adjusted returns?
For HNIs, the focus is increasingly shifting from maximising returns to optimising risk-adjusted returns.
While equities remain the primary engine for long-term wealth creation, building a resilient portfolio requires diversification across multiple asset classes.
Fixed income has become more attractive as it provides stability, predictable cash flows and helps cushion portfolio volatility.
Alternative investments, such as AIFs, are also gaining traction as they offer access to differentiated investment strategies and opportunities that may not be available through traditional products.
Depending on an investor’s objectives, selective exposure to global assets, gold and real assets can further improve diversification and reduce concentration risk.
Ultimately, the objective is not to replace equities but to combine complementary asset classes that can perform differently across market cycles, leading to more consistent long-term risk-adjusted returns.
What are the themes and sectors that can generate alpha in the next 5–10 years? What makes you feel so about them?
1. Manufacturing (Make in India)
Manufacturing currently contributes nearly 16% of India’s GDP, with a long-term target of over 25% by 2035.
Government initiatives such as PLI schemes and the China+1 strategy are accelerating domestic manufacturing and exports.
Increasing localisation, infrastructure spending and global supply chain diversification should support sustained earnings growth.
2. Electronics manufacturing services (EMS)
India’s EMS market is expected to expand from $40 billion in FY25 to $150 billion by FY30, representing one of the fastest-growing manufacturing segments.
Rising domestic electronics consumption, export opportunities and global outsourcing trends create a long structural growth runway. As value addition increases, companies can benefit from both higher volumes and improved margins.
3. Financial services and wealth management
Only nearly 15% of India’s wealth is professionally managed, compared with 60-75% in developed markets, leaving significant room for expansion.
Monthly SIP inflows have crossed ₹30,000 crore, reflecting the continued financialisation of household savings.
Rising HNI wealth, increasing participation in capital markets and demand for professional advice should support long-term industry growth.
4. Healthcare
India currently has only 1.3 hospital beds per 1,000 people, well below the WHO benchmark of 3 beds, highlighting a significant infrastructure gap.
The healthcare delivery market is expected to grow at a 10-12% CAGR through FY30. Rising insurance penetration, ageing demographics and increasing healthcare spending provide strong long-term demand visibility.
5. Renewable energy and power
India aims to achieve 500 GW of non-fossil fuel capacity by 2030, requiring substantial investments across generation, transmission and storage.
Electricity demand is expected to grow at a 5-6% CAGR, driven by manufacturing, data centres, EV adoption and urbanisation.
The sector is supported by favourable policy, large capital expenditure and the transition towards cleaner energy.
6. Consumer discretionary
India’s apparel market is expected to grow from ₹5.47 lakh crore in FY23 to ₹10.68 lakh crore by FY27, implying an 18% CAGR.
Rising disposable incomes, premiumisation and urbanisation continue to support discretionary spending. Organised retail is steadily gaining market share from the unorganised sector.
7. Defence and aerospace
India’s defence exports reached a record ₹38,424 crore in FY26, while 75% of defence capital procurement is reserved for domestic sourcing.
Increasing indigenisation, higher defence spending and export opportunities provide strong long-term growth visibility.
Emerging areas such as drones, AI-enabled defence systems, electronic warfare and advanced electronics are likely to drive the next phase of industry growth.
8. Semiconductors
The global semiconductor market is expected to expand from approximately $775 billion today to $1.6 trillion by 2030.
India is building an integrated semiconductor ecosystem spanning chip design, fabrication, packaging and testing.
Government incentives and supply-chain diversification are positioning India as an emerging semiconductor manufacturing destination.
9. Real estate
India’s real estate sector continues to benefit from urbanisation, premium housing demand and formalisation.
Industry consolidation has strengthened the position of organised developers, while healthier balance sheets and improved cash flows support sustainable growth.
Commercial real estate, warehousing and data centre demand also provide additional long-term growth drivers.
10. Capital markets
India’s capital markets continue to deepen, supported by monthly SIP inflows above ₹30,000 crore and rising retail participation.
Growing assets under management, increasing financial savings and expanding investor participation should support exchanges, depositories, asset managers and other market infrastructure businesses.
Continued financialisation of household savings remains one of India’s strongest long-term structural investment themes.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
