Valuation discipline key in mid, small-caps; India’s long-term growth narrative intact: Whitespace Alpha CEO

Expert view on markets: Puneet Sharma, CEO and fund manager at Whitespace Alpha, believes this is a market that increasingly rewards selectivity, fundamentals, and adaptability. In an interview with Mint, Sharma said the recent exuberance in mid- and small-cap segments calls for tempered optimism. Here are edited excerpts of the interview:

What is your medium-term outlook for the Indian equity market?

India’s long-term growth narrative is undiminished, but we are conscious of near-term event risks, especially geopolitical developments that could spark bouts of volatility.

Over the medium term, we remain constructive but cautious, navigating markets through a lens of relative dislocations rather than directional conviction.

While headline indices may deliver modest gains, the dispersion beneath will be considerable, and therein lies the opportunity.

In our view, staying invested with a defensive overlay is prudent while the broader risk environment remains unsettled.

This is a market that increasingly rewards selectivity, fundamentals, and adaptability.

Has the peak in anxiety around tariffs and India-Pakistan tensions passed, or do you see further risks ahead?

The unfortunate escalation following the Pahalgam incident and India’s retaliatory strike has reintroduced a degree of geopolitical tension that markets had somewhat priced out.

Historically, such episodes have led to short-term volatility but haven’t fundamentally altered long-term economic trajectories.

That said, the situation remains fluid. While we don’t take directional views on such binary events, we emphasise portfolio resilience. These are moments where risk calibration matters more than risk forecasting.

For us, hedging against tail risks — rather than reacting to headlines — remains a central tenet of portfolio construction.

What trading strategy would you recommend for the mid- and small-cap segments in the current market environment?

The recent exuberance in mid- and small-cap segments calls for tempered optimism.

We prefer to engage through a structured framework — think relative value, not runaway rallies. The underlying principle is to remain anchored in fundamentals while tactically exploiting inefficiencies.

In this phase, quality and liquidity are not luxuries — they are prerequisites.

Our lens remains valuation-aware and volatility-sensitive, with a preference for capital preservation over performance-chasing in these frothy segments.

Also Read | Sensex crashes 1% even as mid, small-caps surge. What’s behind the divergence?

Given the prevailing market risks, which sectors should investors focus on for stability and potential outperformance?

Rather than narrowing the lens to sectors, we advocate for focusing on business models that demonstrate resilience across cycles.

Enterprises with robust capital discipline, consistent cash flows, and pricing power tend to offer smoother compounding trajectories, especially when volatility resurfaces.

Moreover, portfolios diversified across revenue models—domestic and export-oriented—stand a better chance of weathering policy or macroeconomic inflections.

In our own framework, we place considerable emphasis on balance sheet strength, governance standards, and return on capital profiles, regardless of sectoral identity.

Do you see value in the defence and PSU segments?

From a thematic standpoint, areas aligned with national priorities or long-term capital expenditure cycles merit close attention.

That said, structural tailwinds don’t always translate into immediate investment merit.

Our approach filters through execution metrics, capital allocation history, and the sustainability of earnings, regardless of ownership or narrative.

We do not approach these spaces with a blanket view; we assess them through the lens of risk-adjusted value and only participate where the reward justifies the embedded volatility.

Do you foresee meaningful earnings upgrades in FY26 across key sectors?

We expect earnings revisions in FY26 to be nuanced rather than broad-based.

Following a year of reset expectations and soft operational momentum, the bar for upward revisions is modest, and rightly so.

While certain structural levers may eventually reassert themselves, the interplay between input costs, policy support, and demand normalisation will define the pace and breadth of earnings growth.

As a fund, we remain attentive to inflection points, but not reliant on them.

We prefer to underwrite earnings resilience rather than forecast upgrades.

How do you view the current inflation-growth dynamics in India, and what factors could potentially derail the economic recovery?

India’s macro framework remains relatively well-balanced, but events like the current border escalation add a new layer of complexity.

Any prolonged conflict could affect investor sentiment, disrupt trade routes, or lead to a shift in fiscal priorities — all of which can muddy the growth-inflation balance.

Moreover, in such times, commodity price volatility and currency pressure may act as additional stressors.

While the underlying domestic demand story remains intact for now, the external environment — both geopolitical and economic — will demand more dynamic policy responses.

Our stance is to remain tactically flexible and structurally grounded.

The US Fed has flagged heightened uncertainty in the US. What does it mean for the Indian investors?

When the world’s largest central bank signals ambiguity, the ripple effects are rarely contained.

For Indian investors, this doesn’t necessarily translate into alarm, but it does underscore the value of strategic hedging and prudent allocation.

Dollar dynamics, rate recalibrations, and capital movement flows are all tethered to Fed signals.

Also Read | US Fed: 5 key risks highlighted by Jerome Powell

In this phase, portfolios anchored in fundamentals, yet agile enough to respond to volatility, are likely to fare better.

We believe that uncertain global tides make the case for strategies that are less directional and more risk-adjusted — a space where market-neutral frameworks tend to thrive.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.

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