Expert view: Umeshkumar Mehta, CIO at Samco Mutual Fund, believes a range-bound market may impact domestic capital inflows. He, however, added that the current nature of domestic participation is structurally different due to the increasing formalisation of household savings, greater financial awareness, and the convenience of systematic investing. In an interview with Mint, Mehta shared his views on Q1 earnings, sectors he is positive about and the AI trade. Edited excerpts:
Nifty’s performance over the last two years has been disappointing. Could this pose a risk to domestic flows, which have cushioned the market during periods of heavy FPI outflows?
While Nifty’s headline performance over the last two years has been relatively subdued, we do not believe this, by itself, poses a meaningful risk to domestic flows at this stage.
The more important change over the past few years has been the Indian investor’s shift towards equities as a long-term asset class. Equity investing, particularly through SIPs, has increasingly become a part of regular financial savings rather than being driven purely by market momentum.
The resilience of the SIP book despite periods of volatility is encouraging in this regard. Domestic investors today appear to have a longer investment horizon and are less inclined to react to every short-term correction in the market.
This behavioural change has been an important factor behind the stability of domestic flows and has helped offset periods of elevated FPI selling.
At the same time, we should not underestimate the importance of market returns. If the market were to remain range-bound or deliver weak returns for an extended period, it could eventually affect investor sentiment and the pace of incremental flows.
However, we believe the current nature of domestic participation is structurally different from what it was a decade ago.
The increasing formalisation of household savings, greater financial awareness and the convenience of systematic investing provide a stronger foundation for domestic flows.
Another important point is that the headline Nifty does not capture the full experience of domestic investors. Even when the large-cap index is relatively subdued, different market segments and sectors can experience independent earnings and valuation cycles.
This creates opportunities for investors and helps sustain participation even during periods when the headline index may not deliver outsized returns.
What is your assessment of Q1 earnings? Do you expect the trend to continue in the coming quarters?
Q1 earnings were encouraging, particularly because the improvement was reasonably broad-based rather than being driven by just a handful of companies or sectors. The overall earnings performance came in better than expectations, with financials, automobiles, NBFCs, metals and several consumption-oriented businesses contributing positively.
One of the key takeaways from the quarter was the improvement in domestic revenue growth.
This indicates that underlying demand remains reasonably healthy, although the picture is not uniform across sectors. Financials continued to benefit from healthy credit growth, lower credit costs and benign asset quality, while NBFCs saw strong AUM growth.
Two-wheeler companies also delivered a particularly strong performance, supported by healthy volumes and operating leverage.
There were, however, some areas of pressure. Higher commodity costs affected margins in parts of the auto sector, while four-wheeler companies faced greater competitive intensity.
Cement companies also saw profitability affected by the combination of input-cost pressures and relatively softer pricing.
IT remained subdued, with growth still impacted by a cautious global spending environment. So, while the overall earnings picture was positive, it was not a uniform improvement across the board.
The encouraging part is that earnings growth is becoming broader. The broadening of earnings is important because it makes the market less dependent on a single sector driving overall growth.
Looking ahead, we expect the trend to remain positive, with the second half of the financial year 2026-27 (H2 FY27) potentially looking stronger than H1.
The benefits from the India-UK FTA should gradually start coming through, particularly for sectors and companies with meaningful export exposure.
At the same time, the festive season should provide an additional tailwind to consumption and automobiles. A more favourable demand environment, combined with the ongoing capex and investment cycle, could support revenue growth in the second half.
How do you view current market valuations? Does the Indian market still offer value?
At an aggregate level, valuations appear reasonably comfortable, particularly after the meaningful derating seen in areas such as banks and IT services.
There are certainly pockets of excess valuation, and investors need to be selective rather than assume that the entire market is attractively valued.
However, on a bottom-up basis, we continue to find opportunities. One of the advantages of the Indian market is the breadth of sectors and businesses available to investors.
Even when the headline index appears expensive, individual companies and sectors can offer attractive risk-reward opportunities as earnings expectations, valuations and business fundamentals diverge.
So, rather than viewing the market as uniformly cheap or expensive, we believe the current environment favours stock selection and a focus on margin of safety.
With crude prices and geopolitical developments likely to keep markets volatile, what should be the investment strategy?
Geopolitical uncertainty is likely to keep volatility elevated. The ongoing U.S.-Iran conflict and disruption around the Strait of Hormuz have pushed Brent crude above $90 a barrel, creating additional risks for inflation, the rupee and corporate margins in India.
We have seen a similar pattern before, particularly during the tariff-related uncertainty under US President Donald Trump in 2025, where markets repeatedly reacted to headlines before fundamentals eventually regained importance.
Therefore, investors should expect volatility rather than try to predict every short-term market move. The first step should be to assess one’s own risk appetite and investment horizon.
For long-term investors, the appropriate approach is to remain disciplined, stagger investments and use periods of volatility to accumulate quality businesses rather than attempting to time the market.
Our proprietary EMOSI framework also points towards a measured approach. The index is designed to assess the margin of safety in equities using factors such as valuations, G-sec yields and technical indicators.
With the EMOSI at 111 as of August 20, 2026, the framework falls in the “high” margin-of-safety zone, which corresponds to “continue investing.”
India is yet to see a major AI-led trade. Do you see this as a key concern for the domestic market?
We do not see the absence of a direct, large-scale AI trade in India as a key concern. There is no doubt that AI is a transformational technology, but the investment opportunity is not limited to only those companies that are directly developing AI models or applications.
India is participating indirectly in the AI value chain through businesses that support the global companies undertaking large-scale AI-related capex.
In many cases, Indian companies stand to benefit from the increasing technology spend without having to be the primary owners of the AI platforms themselves.
Moreover, the current enthusiasm around AI has resulted in very high expectations, and in some cases, investors are chasing the same set of AI beneficiaries globally.
The Indian market offers something different: diversification across financials, consumption, manufacturing, infrastructure, telecom, healthcare, automobiles and commodities.
We have seen the value of this diversification in the past. For instance, during periods when technology stocks were under pressure, domestic themes such as banks, automobiles and consumer businesses have provided alternative sources of earnings growth.
Similarly, India’s post-pandemic capex, manufacturing, and financialisation cycles have created opportunities largely independent of any single global technology theme.
Therefore, we see India’s broad-based earnings opportunity as a strength rather than a weakness.
Which sectors are you bullish on at this juncture, and what is driving your conviction?
At this juncture, our preference is towards financials, industrials and capital goods, metals, automobiles and pharmaceuticals, with an emphasis on businesses where earnings and price momentum are supported by improving fundamentals.
Financials continue to remain an important area of conviction, particularly banks and select NBFCs, given healthy credit growth, stable asset quality and improving earnings visibility.
We also see opportunities in industrial and capital goods, where the ongoing public and private capex cycle continues to provide a favourable backdrop.
The strength in electrical equipment, industrial products and infrastructure-related businesses across our portfolios reflects this opportunity.
We are also constructive on metals, where improving pricing and the domestic investment cycle can support earnings.
Automobiles remain another area of interest, particularly where volume growth and operating leverage are translating into improving earnings.
Pharmaceuticals offer an additional source of diversification, supported by their structural growth characteristics and opportunities across both domestic and export markets.
More broadly, our approach is not to make a rigid sector allocation call.
We prefer to identify companies where earnings momentum, price momentum and underlying business fundamentals are moving in the same direction.
That is particularly important in the current environment, where sector-level opportunities can coexist with significant divergence between individual companies.
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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.
