Daily Voice: Earnings cycle turning; FY27 recovery to gather pace, says Mirae’s Varun Goel

Varun Goel is the Senior Fund Manager at Mirae Asset Investment Managers (India)

• AI led technology change to largely be positive for human-kind
• Expect earnings growth for India small caps to bounce back from a cyclical low in FY25
• Remain constructive on lending space

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"The earning cycle is already turning, and the recovery would get further strengthened in FY27," said Varun Goel, the Senior Fund Manager at Mirae Asset Investment Managers (India) in an interview to Moneycontrol.

According to him, the relative valuation of India compared to other markets has become much more attractive as compared to 2024. "Hence, we could see more interest from foreign investors this year."

He believes that the AI led technology change will largely be positive for human-kind although there could be various winners and losers.

Why do you have conviction on Smallcap space that significantly underperformed partially due to earnings concern?

Over the last twenty years, small cap segment has delivered strong earnings growth and market returns. Primarily, smaller companies often exhibit higher long-term growth potential in both earnings and business expansion. Their relatively unestablished nature makes them more agile, allowing them to respond swiftly to industry shifts and market disruptions. This adaptability often translates into faster growth, which the stock market tends to reward.

However, it's important to note that this higher growth potential comes with correspondingly higher risk.

While global events remain a risk, we expect earnings growth for India small caps to bounce back from a cyclical low in FY25. Smallcaps are inherently more volatile, and sharp corrections are part of the cycle.

Historical trends show that when macro and sentiment-related headwinds ease, this segment tends to rebound strongly. Investors are increasingly allocating to this segment with the expectation of long-term wealth creation. However, it's important to remember that with higher growth potential comes heightened volatility and risk.

Which sectors would you like to bet on in the smallcap space?

We are focusing on businesses that have robust earnings visibility, prudent balance sheets, and scalable business models. Over a 3–5-year horizon, these can emerge as meaningful compounders. We are hopeful of revival in consumption, which will likely lead to more discretionary spending, and positive on manufacturing given the Government’s thrust on Make in India strategy. Domestic cyclical stories like BFSI, auto, capital goods should also do well.

We remain constructive on the lending space. The significant monetary easing carried out this year should lead to healthy growth for small banks, SFBs and NBFCs. The healthcare segment is geared towards healthy medium term compounding with hospitals and diagnostics space seeing a strong shift from unorganized to organized. Also, we see secular growth opportunity in CRAMS (contract research and manufacturing) space.

The portfolio is more geared towards capturing domestic economic recovery stories in BFSI, Auto, Capital goods and manufacturing and cautious on export segments.

Will the RBI prioritise interest rate transmission and liquidity measures over further rate cuts going ahead?

In the short term, RBI’s focus remains on managing systemic liquidity. However, we believe that there is scope for one more rate cut in the next few months if inflation remains well behaved.

Do you advise staying completely away from the technology sector, which has been under significant pressure, or is this an opportune time to accumulate selectively?

We are selectively constructive on IT space. While AI related disruption is real, there will be various winners and losers from this technology change.

The market has largely been range-bound for more than 16 months and has not seen a meaningful up move even after crossing its previous record high in January this year. Do you expect this consolidation to continue for the next few months before conditions stabilise?

FY26 has turned out to be a year of growth rebound for India. Significant monetary easing, GST and income tax cuts, good agricultural production and strong recovery in central government capex spends has resulted in recovery of GDP growth.

Going forward, this growth rebound should get further strengthened and reflect in strong corporate earnings. Credit growth and corporate earnings are recovering, and infrastructure-led capex will get further strengthened in 2026.

Many experts believe FIIs may return following the announcement of the India–US trade deal. Do you agree that this factor alone can bring them back strongly this year?

The relative valuation of India compared to other markets has become much more attractive as compared to 2024 and hence we could see more interest from foreign investors this year.

Do you believe that an earnings recovery is underway, but that a strong earnings cycle may not materialise before the second half of 2026 or FY27?

The earning cycle is already turning, and the recovery would get further strengthened in FY27.

Do you believe that AI will significantly disrupt several industries and that unemployment levels may rise as we move forward?

We believe that the AI led technology change will largely be positive for human-kind although there could be various winners and losers.