Mihir Vora, chief investment officer at TRUST Mutual Fund, believes it is time to increase exposure to equities as he expects 10 to 12% earnings growth for large-caps and about 20% earnings growth for mid-caps and small-caps over the next couple of years. “The medium-term opportunity remains compelling, but the path is unlikely to be linear – discipline in asset allocation and selectivity should be continued,” Vora said in an interview with Mint. Talking to Mint, Vora also explained why the market is not able to sustain gains, the ideal strategy for the mid and small-cap segments, and shared his medium-term outlook for the Indian stock market. Edited excerpts:
Despite healthy macro, trade deals, and FII buying, we are not witnessing a sustained market rally. What is limiting the gains?
Investors have been smarting from a lot of volatility over the past year. While the large indices have held up, there has been pain in the broad market.
A large portion of the investor base in stocks and mutual funds has been added in the last six years, who have mostly seen up markets. So, the experience of the past 15 months is probably a bit new to them, which is making them tentative.
Second, domestic flows, while healthy in aggregate, have been countered by significant FII selling, which needs to stop and turn positive for a sustained rally. The recent reduction in AI hype globally may see natural flows coming back to India.
Third, an increase in STT and the recent RBI directive on funding to capital market players are also likely to cause a short-term technical overhang on the market.
However, all these factors are short-term in nature. I think it’s just a question of time. As long as we deliver the numbers and growth, investors will come back to the market.
Do you think midcaps are more aligned to India’s growth story? What should be our strategy for the segment?
Midcaps are an exciting space to be in. In our view, these are stocks which have graduated from being small gaps to being established businesses with significantly lower risks than small caps.
On the positive side, they still have a long runway of growth because they’re not too large to hit a growth wall. The 150 companies in the midcap index are good quality companies with higher growth prospects compared to large caps, which justifies the premium that they are trading at.
Many of them are leaders in their segments – big and established brands and businesses. Moreover, mid-caps and small-caps form 40% of the market cap of the top 500 stocks – they have become too significant in the market to ignore.
In our portfolios, we are consistently overweight on mid-caps and small-caps as we see more growth options in these segments.
What is your medium-term outlook for the market? Is it the right time to increase exposure to equities?
The India story remains robust. Structural drivers – policy continuity, capex orientation, strong domestic flows and improving earnings breadth – are intact. The market has been resilient in the face of multiple headwinds (Operation Sindoor, tariffs, FII selling, currency weakness, etc.)
We expect 10 to 12% earnings growth for large-caps over the next couple of years. Mid-caps and small-caps are likely to grow higher at about 20%. With these growth expectations and valuations having come down to more reasonable levels over the last 1.5 years, it is an opportune time to increase exposure.
We prioritise sectors with earnings visibility, valuation comfort and alignment with domestic structural themes. The medium-term opportunity remains compelling, but the path is unlikely to be linear – discipline in asset allocation and selectivity should be continued.
The IT sector has seen massive selling this month amid heightened uncertainty. How are you viewing this sector?
We have been underweight in the IT sector for quite some time. Our original thesis was that the IT sector in its current form is a single-digit growth sector, which is not attractive for us.
The AI scare has only accelerated the issues. I think there is a good chance that many Indian IT companies will restructure and reinvent themselves to provide AI-related services, but that may take some time.
We would certainly look at those stocks at that time, but right now it seems to be premature.
What is your assessment of Q3 earnings? Do you expect further improvement in earnings from Q4 onwards?
Q3 marked a good cyclical improvement in growth, though it may need one or two quarters to call it a decisive earnings inflexion.
At the aggregate level, Nifty/BSE500 revenues grew in the range of ~10–13% YoY, driven by financials, autos, metals, jewellery and capital goods.
Profit growth improved sequentially, and operating leverage was visible in several sectors.
However, margin expansion appears to be nearing its peak, and headline PAT in some sectors—particularly IT and discretionary—was distorted by one-off labour code-related charges.
Importantly, the earnings recovery was broader in the wider market than at the Nifty level, where growth remained in single digits, while broader indices delivered double-digit PAT growth. This suggests improving breadth.
Looking ahead 12–18 months, topline growth should remain supported by credit acceleration, currency competitiveness and selective consumption recovery, but margin mean reversion, wage pressures and global uncertainties could temper the pace.
From Q4 onwards, we expect gradual normalisation and sequential improvement as the impact of one-offs (labour code, tariffs, etc.) fades out.
With the Budget and the India-US trade deal behind, what are the major triggers for the market?
A lot of factors needed to drive the markets are falling into place. Valuations have corrected, earnings growth is picking up, credit growth is picking up, inflation is normalising upward from a low base (which will drive nominal GDP growth), and most importantly, we have trade deals with all-important countries in the world.
The positive impact of income tax benefits, GST cuts and rate cuts by the RBI are still percolating down to the economy.
All these factors were not there 3 to 12 months ago, and India was not part of the global AI story. This had led to FII outflows and currency weakness. Most of these are now normalising or reversing, creating a positive foundation for the markets to start performing.
Read all market-related news here
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. 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.
