TRUST Mutual Fund's Mihir Vora Advocates Increased Equity Allocation, Favors Mid and Small-Cap Stocks

TRUST Mutual Fund's Mihir Vora Sees Robust Growth in Indian Equities

Key Highlights

• 10-12% earnings growth expected for large-caps and 20% earnings growth for mid-caps and small-caps over the next couple of years
• Mid-caps are seen as an exciting space to be in, with higher growth prospects and lower risks compared to small caps
• Overweight allocation to mid-caps and small-caps in TRUST Mutual Fund portfolios due to growth opportunities

Market Outlook

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The Indian stock market has not been able to sustain gains despite healthy macro conditions, trade deals, and foreign institutional investor (FII) buying. According to Mihir Vora, chief investment officer at TRUST Mutual Fund, the market is experiencing short-term volatility due to factors such as:

• Volatility in the past year, which has made investors tentative
• FII selling, which needs to stop and turn positive for a sustained rally
• Increased STT and RBI directives on funding to capital market players, causing a short-term technical overhang on the market

However, Vora believes that these factors are short-term in nature and that investors will return to the market as long as growth and earnings are delivered.

Mid-Cap Strategy

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TRUST Mutual Fund is consistently overweight on mid-caps and small-caps due to their growth potential. Mid-caps are seen as a promising space with established businesses, lower risks, and a long runway of growth. Many mid-caps are leaders in their segments with big brands and businesses, and they form 40% of the market cap of the top 500 stocks.

Medium-Term Outlook

The India story remains robust with structural drivers such as policy continuity, capex orientation, strong domestic flows, and improving earnings breadth intact. TRUST Mutual Fund expects 10-12% earnings growth for large-caps and 20% earnings growth for mid-caps and small-caps over the next couple of years. With valuations having come down to more reasonable levels, it is an opportune time to increase exposure to equities.

Sector View

TRUST Mutual Fund has been underweight in the IT sector due to its single-digit growth potential. The AI scare has accelerated issues in the sector, and the fund will look at IT stocks when they reinvent themselves to provide AI-related services.

Q3 Earnings

Q3 marked a good cyclical improvement in growth, with revenues growing in the range of 10-13% YoY. Profit growth improved sequentially, and operating leverage was visible in several sectors. However, margin expansion appears to be nearing its peak, and headline PAT in some sectors was distorted by one-off labour code-related charges.