Risk-reward tilting towards higher exposure to equities: Mihir Vora

Q3FY26 marked a good cyclical improvement in growth, though it may need one or two quarters to call it a decisive earnings inflection, said Vora

Midcaps continue to offer structural growth opportunities even as valuations moderate and earnings recovery broadens across sectors, said Mihir Vora, chief investment officer at Trust Mutual Fund in an email interview with Devanshu Singla. Edited excerpts:

What's your view on the markets and the current valuations?

Valuations have moderated from peak levels, though not outright cheap. Overall indices are trading at or slightly higher than long-term averages, and after the sharp underperformance of India versus other emerging markets in 2025, the India premium has largely gone away. We expect earnings growth of 10-12 per cent for large-caps over the next couple of years, while mid-caps and small-caps may grow at about 15-20 per cent. With valuations having fallen to more reasonable levels over the last 1.5 years, the risk-reward equation is tilting towards higher exposure to equities.

 

Is it the right time to invest in mid-and small-caps?

Midcaps are an exciting space to be in. In our view, these are stocks that have graduated from being small-caps to established businesses with significantly lesser risks than small caps, while still having a long runway for growth. The 150 companies in the midcap index offer higher growth prospects compared to large caps, which justifies the premium at which they are trading. Many of them are leaders in their segments. 

The earnings growth expectations are 15-20 per cent for the next couple of years. Valuations have corrected in the past 1.5 years as the index is almost flat and earnings have continued to grow, so concerns about pricing have reduced. We are consistently overweight on mid-caps and small-caps as we see more growth options in these segments.

How do you assess India Inc’s December 2025 (Q3-FY26) performance?

Q3FY26 marked a good cyclical improvement in growth, though it may need one or two quarters to call it a decisive earnings inflection. At the aggregate level, Nifty/BSE500 revenues grew in the range of 10–13 per cent year-on-year, 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. 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, suggesting 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 Q4FY26 onwards, we expect gradual normalization and sequential improvement as the impact of one-offs fades out.

How sustainable are domestic inflows and liquidity conditions?

SIP inflows have held steady at ₹25–30,000 crore per month, demonstrating resilience despite volatility. Equity mutual fund net inflows have moderated, but this moderation has been driven by higher redemptions and MTM effects rather than attrition in SIP participation. 

Liquidity dynamics are nuanced. Mutual fund cash levels continue to be adequate, but a significant portion of incremental deployment has been absorbed by IPOs, primary issuances and secondary block sales by promoters and private-equity funds. Asset allocation competition, such as flows into gold and silver ETFs, also took some liquidity away from equities, while FII selling acted as a cap on the market. 

Domestic flows provide a floor to the market but do not automatically ensure breadth or momentum. Liquidity risk for mutual fund investors remains limited as portfolios and the investor base are well diversified.

Are you seeing early signs of a private sector capex cycle picking up?

Yes, but the pickup is thematic and concentrated rather than broad-based. Unlike previous instances, investments are not in huge thermal power plants, refineries or petrochemicals. The most tangible evidence comes from the rising share of private sector participation in order books of capital goods and construction companies. This shift is visible in segments such as defence, power digital infrastructure, electronics manufacturing, chemicals, automobiles and pharmaceuticals. 

We expect sectors like textiles also to start the capex cycle as trade agreements with global economies kick in. Traditional capex-heavy industries like steel, fertilizers and cement are showing initial signs of pickup. If the global commodity cycle sustains, we may see a further upswing in capex.

Which sectors look relatively better positioned?

There are three broad structural themes that we like: premium consumption & savings linked to demographics, physical creation, and new business models and technological disruption. We are overweight on consumer discretionary, capital goods and manufacturing, financials and NBFCs. We are underweight on staples, utilities, information technology (IT), energy and materials.

Is the worst of the price corrections over for gold and silver?

We are in a new normal where the western world has adopted money printing as a solution to many problems, which could create long-term inflation and increase monetary and fiscal pressures. In this environment, we would recommend allocating some portion to gold and other precious metals. However, allocation should be made in a prudent manner, and trading or leveraged positions are not recommended.