“The downgrade cycle is bottoming out. By Q3 and Q4, nominal GDP and earnings growth should start improving. Inflation is under control, and the benefits of GST and income tax reforms will begin to reflect in numbers,” Parekh said.
Buy on dips still the strategy
Parekh believes the market is in a buy-on-dips zone, with investors better off being stock selective and maintaining a higher margin of safety, especially in mid and smallcap segments.
He expects Nifty earnings to grow 10% this fiscal, supported by a favorable base effect and improving corporate fundamentals. “We are not cheap yet, but as we transition to FY27–28, valuations will look more reasonable,” he added.
Largecaps remain core, but midcaps need discipline
While Sohum Asset’s flagship fund maintains over 70% exposure to largecaps, Parekh said midcaps can offer selective opportunities — but only with valuation discipline.
“We buy mid and smallcaps only when the entry valuations provide a large margin of safety. The filters are strict, and we expect higher returns to justify the higher risk,” he said.At present, Sohum’s portfolio trades at a price-to-earnings multiple of 13.5x, with an average ROE of 18% and earnings growth of 17%, Parekh noted.
Sector strategy: Financials, telecom, and capital goods in focus
Parekh’s portfolio remains domestically overweight, with large positions in auto, telecom, and capital goods. Key holdings include Bharti Airtel, Indus Towers, Adani Ports, HPCL, and select utilities.
He remains underweight FMCG and global-facing sectors, saying the domestic recovery offers more tangible growth drivers.
“Telecom and financials continue to excite us. In financials, NIM compression is known, and credit costs are under control. Once NIMs bottom out by Q4, FY27 will look far stronger,” he explained.
Banking sector: Weak quarter, strong outlook
Parekh expects banking to lead the next leg of the market rally once credit growth accelerates and interest rates stabilize.
“Asset quality is clean, credit costs are benign, and provisioning remains low. Once the margin pressure subsides after one more quarter, financials will outperform,” he said.
While the fund is tactically underweight financials due to Q2 margin pressures, Parekh confirmed that Sohum plans to increase allocation as visibility improves.
Macro view: Fiscal control and balance sheet strength key
According to Parekh, India’s macroeconomic backdrop remains stable despite global headwinds. “Government fiscal discipline, healthy household savings, and strong corporate balance sheets create a resilient base,” he said.
He expects liquidity support from the RBI and a manageable fiscal deficit, even amid softer tax collections.
Investor takeaway
Parekh’s advice to investors:
- Stay invested and use dips to build positions.
- Prioritize quality largecaps for stability.
- Be selective and valuation-conscious in mid and smallcaps.
- Expect earnings recovery from Q3 FY26 onwards, led by financials and domestic sectors.
“Patience will be rewarded. This is a market for steady, disciplined investing — not for chasing short-term momentum,” Parekh concluded.