There is plenty for equity investors to keep an eye on right now. Oil prices, geopolitics, interest rates and foreign flows can all move the market in the short term. But underneath that noise, earnings, domestic investment and the capex cycle are still shaping where fund managers are looking for opportunities.
Investor behaviour is changing as well. SIP inflows have continued through volatile periods, more investors are coming in from outside the large cities and domestic money now has a much bigger presence in the market.
So, what does the current setup look like from a fund manager’s desk?
Sumit Bhatnagar, CIO – Equity, LIC Mutual Fund Asset Management Ltd., speaks about the areas he is watching, the case for being selective in mid and small-caps, what could bring foreign investors back and how India’s mutual fund investor is changing.
1. How do you assess the current market environment, and what opportunities do you see emerging for long-term equity investors?
The current market environment reflects a balance between near-term global uncertainties and long-term investment opportunities. While factors such as crude oil prices, geopolitical developments, global interest rates and trade-related uncertainties may continue to influence market sentiment, India’s underlying economic and corporate fundamentals remain stable. Earnings expectations for FY27 and FY28 have largely remained intact, providing support to medium-term market returns.
From a long-term perspective, we continue to see opportunities across India’s structural growth themes, including manufacturing, power and electrification, defence, healthcare, digital infrastructure, financialisation and the ongoing private-sector capex cycle. Additionally, opportunities arising from China+1 supply-chain diversification, import substitution, AI-led technology adoption and selective financials remain relevant. Periods of market volatility can present opportunities to evaluate businesses with established competitive advantages, consistent cash-flow generation and sustainable earnings growth.
2. How is LIC Mutual Fund witnessing the evolution of investor behaviour, and what role do SIPs play in helping investors navigate market volatility and build long-term wealth?
We are witnessing a shift in investor behaviour from cyclical, return-driven participation towards a more disciplined and goal-oriented approach to wealth creation. Investors increasingly recognise mutual funds as a vehicle for long-term wealth generation rather than short-term market participation. The investor base is also broadening, with growing participation from younger investors, digitally enabled customers and investors from Tier 2 and Tier 3 cities.
SIPs continue to play a role in this evolution. The consistency of SIP inflows despite periods of market volatility highlights continued investor participation in long-term investing. By encouraging disciplined investing across market cycles, SIPs help mitigate the impact of short-term volatility, promote rupee-cost averaging and enable investors to benefit from compounding over time. The growing acceptance of low-ticket investment solutions, including Pocket SIPs, further supports financial inclusion, especially beyond the metros.
3. How does LIC Mutual Fund approach identifying opportunities across market segments, and what factors should investors consider when evaluating mid- and small-cap investments in the current environment?
We follow a research-intensive, bottom-up investment approach across market capitalisations, with a focus on identifying businesses that demonstrate management quality, scalable growth opportunities, sound capital allocation, sustainable competitive advantages and risk-adjusted return potential. Investment ideas are generated through a combination of company interactions, industry and channel checks, broker research, conferences, quantitative screening tools and detailed fundamental analysis, complemented by governance and risk assessment frameworks.
In the current environment, investors evaluating mid- and small-cap opportunities should prioritise business quality, earnings visibility, management credibility, balance-sheet strength, liquidity and valuation discipline. While recent market corrections have changed the opportunity set in select pockets of the broader market, a selective approach remains appropriate. We believe companies benefiting from structural themes such as manufacturing, import substitution, power, defence, healthcare, digital infrastructure and domestic consumption offer long-term growth potential. Investors should maintain an appropriately long investment horizon and be prepared for comparatively higher volatility within this segment.
4. What developments could support a sustained revival in foreign investor interest, and how does LIC Mutual Fund view the role of domestic investors in strengthening India’s equity markets?
A sustained revival in foreign investor interest is likely to be supported by India’s stable macroeconomic fundamentals, improving earnings outlook, accelerating capex cycle and long-term growth opportunities across manufacturing, infrastructure and domestic consumption-led sectors. We are also witnessing a shift in earnings trends, with upgrades increasingly outpacing downgrades across several sectors.
Importantly, foreign ownership in Indian equities is close to multi-year lows, India’s representation in global equity portfolios remains below its long-term potential and the valuation premium versus other emerging markets has moderated significantly from historical highs. These factors affect India’s relative position from a global asset-allocation perspective.
At the same time, domestic investors have emerged as an important participant in Indian equity markets. Rising SIP participation, increasing financialisation of household savings and sustained domestic inflows have supported market resilience, reduced dependence on foreign flows and provided stability during periods of global uncertainty. This growing domestic participation is creating a more diversified capital-market ecosystem.
5. How do economic growth, domestic consumption and the anticipated earnings recovery shape LIC Mutual Fund’s equity outlook, and which structural themes could support long-term investment opportunities?
We remain constructive on Indian equities from a medium- to long-term perspective. India’s growth outlook continues to be supported by steady domestic consumption, rising public and private-sector capital expenditure, infrastructure development and expanding manufacturing activity. While global uncertainties remain, corporate earnings have demonstrated stability and the earnings downgrade cycle appears to be moderating, supporting expectations of a gradual recovery in profitability over the coming quarters.
Our investment outlook is anchored in India’s structural growth story. We continue to see opportunities across themes such as manufacturing and import substitution, power and electrification, defence, railways, healthcare, financialisation, digital infrastructure and selective private-sector financials. The ongoing capex cycle, China+1 supply-chain diversification and the “Make in India, Make for the World” initiative are creating multi-year opportunities across EMS, semiconductors, aerospace, auto ancillaries and capital goods. We believe periods of market volatility can present opportunities to consider fundamentally sound businesses with sustainable growth prospects and clear earnings visibility.
6. How does LIC Mutual Fund see the industry’s growth trajectory over the coming years, particularly in expanding equity participation, reaching investors beyond major cities and encouraging informed long-term investing?
We remain optimistic about the long-term growth trajectory of the mutual fund industry. The structural shift in household savings from physical assets towards financial assets is still at a relatively early stage, and India remains underpenetrated compared to developed markets in terms of household allocation to equities and mutual funds as a percentage of GDP. This provides scope for future growth.
The industry’s evolution is reflected in the growth of SIP participation, with monthly SIP inflows increasing from less than ₹3,000 crore a decade ago to over ₹30,000 crore today. The next phase of growth is likely to be driven by deeper penetration beyond metro markets through digital distribution, enhanced investor education, wider financial inclusion and improved accessibility of investment products.
We believe the industry’s focus should remain on promoting informed, long-term investing rather than short-term market participation. As equity ownership expands across geographies and demographics, domestic investors will play an increasingly important role in supporting capital formation, market stability and long-term wealth creation.
Conclusion
The picture that comes through is not one where every part of the market is moving together. Some areas have corrected, global uncertainty has not gone away and smaller companies can still see sharper swings. That leaves more work to be done at the company level.
At the same time, money coming into mutual funds through SIPs and the wider spread of equity investing beyond the metros are becoming harder to ignore. For Bhatnagar, the opportunities remain tied to earnings, balance sheets and businesses that can participate in areas where investment is still expanding. How those opportunities play out will depend as much on what companies deliver as on what the broader market does next.
SEBI Reg: LIC Mutual Fund | Reg No: MF/012/94/5
Disclaimer: The views expressed herein are based on internal data, publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines only, which you must confirm before relying on them. The information contained in this document is for general purposes only. The document is given in summary form and does not purport to be complete. The document does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. The information / data herein alone is not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein are based on our current views and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in the future. LIC Mutual Fund Asset Management Ltd. / LIC Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investment made in the scheme(s). Neither LIC Mutual Fund Asset Management Ltd. and LIC Mutual Fund (the Fund) nor any person connected with them accepts any liability arising from the use of this document. The recipients(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein.
The article is written by Sumit Bhatnagar, CIO – Equity, LIC Mutual Fund Asset Management Ltd.
Mutual fund investments are subject to market risks, read all scheme-related documents carefully.
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