As the economy improves, mid-caps can deliver higher growth

Is the rally in global equity markets sustainable? The rally in global markets is largely the result of changes in expectation with regard to the rate cycle, especially the pause in the (US) Federal Open Market Committee as a result of the Brexit-related consequences that have come to the fore. Risks to markets are there simply because global growth is still uncertain and remains a key risk to a continued rally.

India vs. the emerging market pack: India stands out, for sure, simply because India is seeing improvement in its growth profile and other macro fundamentals remain excellent. On the other hand, economies globally are very slow. In most countries, there is massive struggle for growth and here India certainly stands out.

If you look at where the valuations were even four months earlier, these are now relatively expensive. It also means the risk of correction goes up in the near term. However, we must note that on a long-term basis, the Indian market is on an absolutely strong footing, as it would be driven by improving fundamentals.

On mid-caps and small-caps: We shouldn't look at mid-caps as an asset class. It is important to recognize that mid-caps, while they present a riskier class of stocks than large-caps, are not a uniform asset class. Hence, the themes one will play for large-caps would be very similar to those one would play for mid-caps. When growth is picking up, mid-caps being smaller companies are typically able to grow faster. It is much tougher for large-caps to eke out growth. So, as the economic cycle improves, mid-caps have a higher chance of delivering higher growth.

Sectors that will do well: If one is bullish on the economy, mid-caps should do well. If you look at sectors which derive their revenues from the Indian economy rather than exportrelated sectors, all sorts of themes are doing well. Consumption, industrials and financials are doing well. It's a wide variety to choose from, in terms of themes but I will emphasise that it is not a uniform thought process about mid-caps as an asset class. It will vary, stock by stock and sector by sector.

On GST: The timeframe of gauging the benefits is critical in this case. Notably, stocks related to GST have done well but the extent of benefit can be much larger in the long-term than what the markets think. GST is truly a game-changer, and it is indeed a very important reform that has taken place.

Investment strategy: Our strategy largely stems from the belief in the prospects of the Indian economy, and our stock selection has generally been driven by that.

What are your earnings estimates for India Inc in FY17 and FY18? It has been an average quarter. Unlike the previous earning season, which surprised positively, this has been more balanced. I think 15-17 per cent is a good number for a growth forecast (for FY17), which is also the overall consensus for market earnings growth.