Equinova stays bullish on smallcaps, raises banking exposure on earnings outlook

Detailed summary

Equinova Investment Managers remains bullish on India's manufacturing sector, particularly auto ancillaries, citing export opportunities and increasing participation in aerospace and defence manufacturing.

Equinova Investment Managers is maintaining its preference for smallcap stocks, citing stronger earnings momentum, while increasing exposure to the banking sector as it expects credit growth and the capital expenditure cycle to support future returns.

The investment firm also remains positive on India's manufacturing theme, which it believes will continue to drive corporate earnings over the coming years.

Aniruddha Sarkar, Co-Founder & Chief Investment Officer at Equinova Investment Managers, said the firm's investment strategy continues to focus on earnings growth rather than market capitalisation. While valuations in largecap stocks have become more attractive, he said stock selection remains critical.

Although largecap valuations have improved, he added that the firm continues to prefer smallcap companies because earnings are growing strong.

Within largecaps, Equinova has increased its allocation to banks while remaining cautious on sectors such as information technology and fast-moving consumer goods (FMCG). Sarkar said banks offer an attractive combination of improving fundamentals and valuations.

The firm continues to favour PSU banks, which it has preferred for the past few years, while also increasing exposure to larger private lenders after recent valuation corrections.

According to Sarkar, banking allocation needs to be increased, supported by the ongoing interest-rate cycle, improving credit demand and a revival in the capital expenditure cycle. He added that several private banks have undergone either price or time corrections, creating selective investment opportunities.

Beyond banks, Sarkar said the broader financial sector has strengthened, with private banks, non-banking financial companies (NBFCs), microfinance institutions and small finance banks showing improving balance sheets and asset quality. However, he said Equinova is avoiding gold financing companies despite maintaining exposure to select NBFCs and small finance banks.

Sarkar remains most…

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