After 40% corrections, broader market offers alpha, says Sunil Singhania

Sunil Singhania, Founder, Abakkus Asset Management

• Small and mid-cap stocks may offer compelling risk-reward now
• Niche pharma, engineering, and new-age firms seen as promising
• Economic indicators and earnings show signs of recovery

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Niche pharma, engineering, small discretionary consumption firms and some new-age companies look interesting, said Sunil Singhani, Founder, Abakkus Asset Managers, speaking at a panel at the Crystal Gazing Summit, organised by PMS AIF WORLD.

After 15–18 months of turbulence, Singhania believes Indian markets, particularly small caps, may be approaching a turning point. He describes the past year and a half as a “period of challenges”, marked by slowing economic momentum, softer corporate profit growth and heightened geopolitical tensions.

The correction also followed an exceptionally strong four-year run between 2020 and 2024, when markets, especially smaller companies, delivered outsized gains. “Recency bias makes us believe that when things are going well, they will continue to go well,” Singhania noted. By mid-to-late 2024, many stocks were trading at significant premiums to their historical fundamental valuations. The combination of stretched valuations and an earnings slowdown, he argues, set the stage for the correction.

Yet Singhania sees opportunity emerging from the carnage. After seven quarters of earnings disappointment, the December quarter surprised positively. Large-cap earnings growth has been around 10–10.5%, while broader market earnings growth has ranged between 15% and 19%, depending on the index.

Macro signals are also improving. Government measures such as income tax relief, GST tweaks and liquidity support from the Reserve Bank of India are beginning to reflect in economic indicators. Two-wheelers, tractors, commercial vehicles, retail consumption and even heavy industries such as steel and cement are showing signs of recovery. Power consumption trends reinforce the narrative of an economic uptick.

He also believes the tariff overhang that disproportionately hurt export-oriented smaller companies — including textiles, garments, jewellery and select engineering firms — is now largely behind the market.

If markets recover, smaller companies tend to outperform, he argues. Importantly, investors are entering at a time when many stocks have already corrected significantly, improving the probability of alpha in the broader market.

Singhania cautions against relying on index-level price-to-earnings multiples for small caps. Unlike large-cap indices dominated by stable, profitable companies, small-cap indices include loss-making firms that distort aggregate valuations. Bottom-up stock selection, he says, is critical.

Looking ahead, he frames the opportunity in structural terms. India’s first trillion dollars of GDP was built on core sectors like steel, cement and textiles. The next phase, from $1 trillion to $4 trillion, was powered by private banks, IT services, pharma and consumption. As India moves from $4 trillion to $8 trillion, growth could come from entirely new segments: specialised engineering, defence, niche chemicals, pharma, EMS, AI-linked businesses, platforms and asset and wealth management firms. Many leaders in these sectors are still relatively small.

Traditional heavyweights such as HDFC Bank, Kotak Mahindra Bank, Hindustan Unilever and ITC have delivered muted returns in recent years, partly due to scale constraints. Future wealth creation, Singhania suggests, may lie in the next generation of growth companies.

His conclusion: after a sharp and, in parts, brutal correction, the broader market appears better positioned. For investors willing to take a medium-term view, the risk-reward in select small and mid-sized companies looks increasingly compelling.

PMS AIF WORLD is India’s leading wealth services firm specialising in alternative investments, serving over 800 clients across Rs 2,200 crore in PMS and AIF assets. The firm follows a knowledge-first philosophy with the belief that when knowledge leads, wealth follows, and it focuses on delivering well-informed investing for its alpha seeking clientele.

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