A significant divergence has emerged in Indian equity markets, with mid and smallcap stocks surging ahead of largecaps despite struggles in marquee Nifty 50 constituents. According to Rajesh Kothari, Chief Investment Officer at AlfAccurate Advisors, which manages over ₹3,500 crore in PMS, this divergence is primarily driven by earnings performance. As reported by ET Now, Kothari emphasized that "the earnings delivery is what is basically the driving factor, be it a megacap, be it largecap, be it midcap or smallcap." The difference lies in that headwinds buffeting India's biggest companies — commodity volatility, muted IT services demand, oil marketing swings — simply do not apply to a large swath of the mid and smallcap universe. As per ET Now, Kothari noted that "when you look at 50-plus companies up to 1000 companies, there are so many opportunities."
The performance gap is attributed to a fundamental shift in mid and smallcap company profiles. According to Kothari's analysis reported by ET Now, companies with ₹400-crore profit size and ₹1,000-crore profit size are no longer small or mid-sized, but actually big. He noted that "when companies carry zero debt, they survive economic downturns rather than collapse under them." The investment expert highlighted that over the last two to five years, many mid and smallcap companies have become debt-free, enabling them to survive economic storms more effectively than previously. As reported by ET Now, Kothari explained that "earlier, whenever there was an economic storm, mid and smallcap companies used to go down much because they were highly leveraged. But in the last two, three, four, five years many of these companies have become debt-free — and when you become debt-free you survive the downturn."
AlfAccurate Advisors is positioning for six key themes: Electronic Manufacturing Services (EMS), Capital Goods & HVDC, Auto Ancillaries, Consumer Discretionary, Banking & Finance (BFSI), and Defence & Aerospace. However, Kothari maintains a cautious stance on IT services, warning of a potential 12-24 month period of sideways movement due to weak global ER&D cycle and tepid demand recovery. As reported by ET Now, he stated "we are not yet positive on IT services sector in general," though he holds positions in software product companies that have already revived. The investment expert emphasized that "in every sector there are winners and losers. What we need to focus on is how we can select the winners within each sector."
Kothari believes the current market environment presents opportunities for selective investing. According to ET Now, he noted that "200 companies grew earnings 15%-plus even when the market was flat," indicating strong underlying fundamentals. The investment expert emphasized the importance of identifying winners within each sector, stating "what we need to focus on is how we can select the winners within each sector." With valuations now in what he calls a "comfortable zone" after recent corrections, he believes this environment favors disciplined stock selection strategies. As reported by ET Now, Kothari believes "the current market — with valuations now in what he calls a 'comfortable zone' after the correction — is precisely the kind of environment where that discipline pays off."
