Indian equities may be entering a more favourable phase, but the next leg of returns could come from unexpected corners of the market rather than the large-cap stocks that have led in recent years, according to Vikas Pershad, Portfolio Manager, Asian Equities at M&G Investments. Speaking to NDTV Profit, Pershad said improving earnings, a steadier rupee and wider gaps between individual stocks are creating more opportunities for investors willing to look beyond the market's traditional winners.
Large-Cap Winners Lose Preference
Pershad said M&G Investments is currently underweight staples, banks, oil and gas and IT services at the sector level, although it continues to hold select companies within these segments.
Private-sector banks account for one of the smallest portions of the portfolio in many years, while NBFCs have gained importance. According to Pershad, market returns are increasingly being driven by smaller constituents and off-benchmark stocks, with even recent IPOs outperforming some established listed companies.
“We're in the camp that the winners of yesteryear probably, on a one to two-year view, aren't what's going to drive returns,” Pershad said.
Pershad also said that healthcare services is one of the sectors where M&G has maintained a significant overweight. Its exposure includes hospitals, diagnostics, dialysis and contract development and manufacturing organisations, or CDMOs. Pershad said the firm has a multi-year view on the segment, citing the potential for sustained high growth.
Also Read: Health Ministry Proposes Medical Device Rule Changes To Ease Business, Speed Up Market Access
AI Build-Out Opens New Opportunities
Pershad also sees opportunities in Indian companies benefiting from the wider AI infrastructure build-out rather than directly operating data centres.
He highlighted transformers, transformer oil, cooling solutions and optical-fibre cable companies as examples of businesses linked to the AI investment cycle. He also stated that M&G is looking for bottlenecks and companies that could benefit even if hyperscaler capital expenditure slows.
The transition from silicon-based to photonics-based computing is creating demand for optical fibre, while defence applications are adding another source of demand. Pershad said tethered drones now account for nearly 20% of optical-fibre cable demand, according to his estimate.
M&G is less exposed to data-centre operators, where Pershad sees risks from slower growth and lower utilisation. Instead, the firm is looking at companies involved in cooling, water treatment and ultra-pure semiconductor-grade water.
Pershad said M&G underwrites low-to-mid-teens earnings growth for India over the next few years and looks for companies that can materially exceed that rate. Its India-dedicated strategy remains fully deployed, while its regional strategies have gradually reduced their India underweight.
Also Read: Market Reality Check: Don't Expect 30% Returns, Says Nilesh Shah
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
