Summary:
After a year of sharp underperformance versus global peers, India’s macro setup appears poised for recovery, supported by currency stability, GST-driven consumption revival, and accommodative monetary policy. Helios Mutual Fund expects mid and small caps to lead the next phase of market gains, while large caps provide stability. Focus remains on growth at a reasonable price, with selective exposure to fintech, platforms, BFSI, and consumption
Global
- India has underperformed MSCI EM by ~30%, marking its steepest lag in 35 years.
- INR stabilization (~₹88–89/USD) improves attractiveness for foreign investors.
- Global trade tensions easing as US and Russia-related tariffs normalize.
- Falling global inflation in the US/Europe may boost risk appetite and FII flows into India.
Domestic Economy
- GST rationalization simplified slabs to 5% and 18% (plus 40% sin rate), lowering prices and reviving consumption.
- Pent-up demand has stressed logistics and retail systems — an indicator of strong demand recovery.
- Q2/Q3 earnings growth expected near 8%, with banks under pressure (−2%) and non-bank sectors +11–12%.
- Private capex likely to accelerate as capacity utilization crosses 65–66%, driving jobs and income growth.
Investment Outlook
- Large caps relatively cheap but limited in alpha potential.
- Mid & small caps positioned to outperform via index churn and growth leadership.
- Preference for new-age companies, fintech, e-commerce, and platform businesses under “growth-at-reasonable-price” lens
Risks
- Bank earnings pressure from narrowing NIMs could cap near-term EPS growth.
- Small-cap valuations stretched — selective approach essential.
- External risks: trade tariff reversals, liquidity tightening, and geopolitical shocks.
Opportunities
- BFSI & consumption to benefit from RBI rate cuts and liquidity support.
- Fintech and digital platforms offer structural alpha from India’s digital adoption.
- Hospitality & tourism gaining from limited supply and rising discretionary spend.
Policy Watch (Near Term)
- RBI easing continues to support credit and growth.
- GST cuts expected to add to GDP momentum in next 1–2 quarters.
- US–India tariff talks key monitorable for export recovery potential.
Key Takeaway
The worst of macro and policy headwinds appear priced in.
Domestic demand revival, policy support, and liquidity easing set the stage for a rebound from Q3 FY26 (Dec quarter).
Helios sees mid & small caps driving alpha, while large caps form the steady core.
Adopt a growth-at-value strategy for long-term wealth creation in India’s evolving economy.
