After recent sharp correction across caps, "we find manufacturing & engineering, infrastructure ancillaries, and export-driven businesses attractive," said Pawan Bharaddia, the Co-Founder and CIO of Equitree Capital in an interview to Moneycontrol.
At Equitree, Bharaddia & his team built up cash reserves for new investors from H2 2024, precisely for such corrections. "This allows us to deploy capital judiciously, rather than chasing momentum," he said.
With more than 25 years in private and public market investing, Pawan believes SIPs (systematic investment planning) are no longer just an alternative to traditional savings—they are becoming a key stabilizing force in Indian markets, ensuring steady domestic participation regardless of global capital flows.
Do you believe the market is near its bottom now, despite concerns over US tariffs?
At Equitree, we don’t try to precisely time market bottoms—experience shows that’s nearly impossible. That said, we believe the market is progressing through the final phase of a long-overdue correction. Historically, small and mid-cap corrections last 8-12 weeks, and the Nifty-50 has fallen 13%, Nifty MidCap 100 by 18%, and Nifty Small Cap 100 by 22%—close to the median correction we typically observe.
Despite global concerns (like US tariffs), India’s domestic growth engines—robust infrastructure spending, manufacturing tailwinds, and formalization of the economy—remain intact, supporting earnings resilience.
A useful comparison is the 2018 small-cap bear market, where the index fell ~34% over six months but then rallied 135% in just 10 months. While past performance is no guarantee, it shows how quickly sentiment can turn once macro conditions stabilize. However, the recovery was selective—only fundamentally strong businesses rebounded, reinforcing the importance of bottom-up stock selection in such markets.
Do you foresee further sharp corrections in mid-cap and small-cap stocks in the short term?
Small and mid-caps correct harder due to lower liquidity and sentiment swings. While the NSE Small Cap 100 is down ~22%, over 60% of Rs 1,000+ crore (market cap) stocks have fallen more than 30%, primarily in speculative names driven by narratives rather than earnings.
2025 will be a stock picker’s market, with continued volatility in the Rs 10,000–Rs 70,000 crore range (market cap), where liquidity had previously driven valuations to stretched levels. Despite the correction, the Nifty Midcap 100 (28.6x forward earnings) and Nifty Small Cap 100 (20.9x) still trade at 30-35% premiums to their 10-year averages, suggesting potential 5-15% downside for overheated names if earnings fail to catch up.
However, at the Rs 500–Rs 5,000 crore level, valuations are more reasonable (only an 18% premium), with stronger earnings visibility and less speculative excess. Broad corrections tend to wash out market froth before fundamentals regain control, and sentiment-driven selling in high-quality small caps often presents attractive long-term entry points.
Where would you place your bets in the current correction?
Rather than deploying a lump sum at a perceived “perfect bottom,” we prefer a staggered buying approach, averaging into quality names as valuations reset. This ensures better risk management and a healthier margin of safety—especially after the strong market run-up of recent years.
At Equitree, we built up cash reserves for new investors from H2 2024, precisely for such corrections. This allows us to deploy capital judiciously, rather than chasing momentum.
Sectors we find attractive:
>> Manufacturing & Engineering – Benefiting from China+1 shifts, PLI incentives, and rising global demand.
>> Infrastructure Ancillaries – Supported by accelerating domestic capex, railways, and power investments.
>> Export-Driven Businesses – Particularly engineering goods, electronics, and pharmaceuticals, which remain less correlated to India’s domestic cycles, adding diversification.
We focus on companies with 20-25% earnings visibility, stable or improving margins, and prudent capital allocation. This correction is a natural reset—not a reason to panic. Instead, it’s an opportunity to accumulate high-quality stocks at valuations that support long-term wealth creation.
How do you identify opportunities in the small-cap space, which experienced a bloodbath in the recent correction?
Successful small-cap investing isn’t about chasing momentum—it requires conviction, patience, and deep research. At Equitree, we apply a private equity mindset, identifying businesses with long-term compounding potential while filtering out speculation-driven names.
Our Framework for Small-Cap Investing:
>> Scalability – Companies in large, expanding markets with multiple growth levers.
>> Management Quality & Governance – Promoters with multi-decade experience, clean balance sheets, and transparent disclosures.
>> Cash Flow Strength – Growth and reinvestment funded by internal accruals rather than debt or frequent equity dilution.
>> Valuation Discipline – Even great businesses can be poor investments at the wrong price. We patiently wait for price dislocations to buy.
>> Long Holding Period – The biggest winners emerge over time. Navigating short-term volatility is crucial to capturing long-term multibagger returns.
This approach has delivered an 85% hit ratio at Equitree Capital, compounding at 32% IRR since inception in 2012, across multiple market cycles. The current correction presents a rare opportunity to accumulate such businesses while sentiment-driven investors remain on the sidelines.
Do you expect investment via a Rs 250 SIP to increase significantly?
SIP inflows remain resilient, hitting Rs 26,400 crore in January 2025, despite a 10% Nifty correction and $21 billion in FPI outflows. Unlike past cycles—where retail investors exited during volatility—they are now staying invested, a major shift in market behaviour.
What’s Driving This Shift?
>> Financial Literacy & Formalization – More Indians understand long-term investing, with SIPs becoming the preferred wealth-building tool over traditional savings.
>> Behavioural Change – Investors are buying the dip, benefiting from lower unit costs and compounding over time.
>> Market Stability – Monthly SIPs now cushion against foreign capital outflows, making Indian markets more domestically driven.
As financial inclusion deepens and household savings shift toward equities, SIP growth is structural, not cyclical. While short-term returns may fluctuate, the long-term advantage of accumulating quality businesses at lower valuations is becoming clearer to more investors.
SIPs are no longer just an alternative to traditional savings—they are becoming a key stabilizing force in Indian markets, ensuring steady domestic participation regardless of global capital flows.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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