Broader Market Offers Alpha Despite 40% Corrections, Says Sunil Singhania

Market Outlook: Indian Markets May Be Approaching a Turning Point

Abakkus Asset Managers' Founder, Sunil Singhania, believes that Indian markets, particularly small caps, may be approaching a turning point after 15-18 months of turbulence. This period of challenges was marked by slowing economic momentum, softer corporate profit growth, and heightened geopolitical tensions.

Market Correction

The past year and a half followed an exceptionally strong four-year run between 2020 and 2024, when markets, especially smaller companies, delivered outsized gains. Singhania notes that the correction was inevitable due to stretched valuations and an earnings slowdown. However, he sees opportunity emerging from the carnage, citing a surprise positive earnings growth in the December quarter.

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Economic Indicators

Macro signals are improving, with government measures such as income tax relief, GST tweaks, and liquidity support from the Reserve Bank of India beginning to reflect in economic indicators. Key sectors such as two-wheelers, tractors, commercial vehicles, retail consumption, and heavy industries like steel and cement are showing signs of recovery.

Investment Opportunity

Singhania believes that if markets recover, smaller companies tend to outperform. Importantly, investors are entering at a time when many stocks have already corrected significantly, improving the probability of alpha in the broader market. He cautions against relying on index-level price-to-earnings multiples for small caps and emphasizes the importance of bottom-up stock selection.

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Structural Opportunity

Looking ahead, Singhania frames the opportunity in structural terms, highlighting the potential for growth in new segments such as 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, and future wealth creation may lie in the next generation of growth companies.

Risk-Reward

His conclusion is that 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.

About PMS AIF WORLD

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, focusing on delivering well-informed investing for its alpha-seeking clientele.