In midcaps and small-caps, there is surely a euphoric situation in some quarters. We have seen such phenomena multiple times over the past two decades. Suddenly, everyone has multi-bagger ideas. This is a clear warning sign that a correction is due. This is what is happening. Thus, while being very constructive on the markets, we do expect a correction in over-hyped, over-expensive mid and small caps. However, over a period of time, this segment should do slightly better than large caps as they grow faster.

Valuations are surely 10-12% higher than the 10-year average on a PE basis. Having said that, our view is that India is likely to witness a structural growth trajectory for the next 8-10 years. We have the best ever macros with low oil prices, low inflation, lower interest rates, a very stable currency and lower fiscal deficit. The government has been very affirmative and pushing towards historic reforms like GST, Make in India, less-cash, DBT, etc. and growth also looks like picking up meaningfully in the near term. Domestic investors have become more matured and are systematically investing in equities. This makes us happy as in the past only the foreign investors have benefitted out of the huge wealth creation by Indian companies. In the past 3-4 years, we have seen more investments by domestic investors and they have also reaped the benefits of good equity returns.

We continue to be positive and optimistic on Indian economy and markets. Corrections in market and volatility are part and parcel of equity investments and we should not get fearful about that. We continue to like private sector banks, niche financials in life insurance, asset management and wealth management space, consumer discretionary, chemicals and agro chemicals and high quality engineering companies.

The corporate earnings recovery has not been seen for the last two years. We expected that but have been wrong for multiple reasons. However, we are now seeing some green shoots. Metal companies have started doing well and the stressed assets problem of banks also seem to be peaking. We are hopeful that FY18 and FY19 should see good double digit earnings growth.

Over the past couple of years, there have been multiple periods of events and corrections in the market. We have had IT bubble, scams, political issues, global melt downs, Brexit, US elections, etc. However, the markets have always taken these events in its stride and moved ahead. The bottom line is very clear: in a growing economy, corrections will come and provide the best investment opportunities. Ultimately, investors who have stayed put have reaped the maximum benefits. Reliance Growth Fund has grown 100x over the last 22 years. So, our advice would be to not complicate investing, have faith in the Indian economy and decent returns will be made in India equities over a period of time.

Pharma & Technology sectors have been facing multiple headwinds. Apart from regulatory issues and US related rhetoric of protectionism, a stronger rupee is also been a headwind. However, stocks are now trading at decent multiples and should be on an investors' watch list. Maybe, slow nibbling is recommended.