Aparna Shanker, CIO – Equity at The Wealth Company Mutual Fund, recommends a balanced and diversified approach for FY27, with a clear bias towards equities while maintaining exposure to debt And gold. It presents an ideal asset allocation strategy for moderate risk investorswhile highlighting opportunities in the manufacturing sector, finance and select small and mid cap stocks.
Edited excerpts from a discussion:
After a year and a half without returns, how attractive does the market now look?
Over the past 18 months, the market has largely gone through a phase of consolidation rather than wealth destruction. This period helped correct some of the excessive valuations that had previously built up, particularly in certain pockets of the broader market. From a long-term perspective, these phases are healthy because they allow profits to catch up with prices. Looking ahead, Indian corporate profits remain structurally strong, supported by improving balance sheets, a recovery in investment and domestic consumption. Therefore, while short-term volatility may persist, the market today appears much more balanced than it did a year ago, improving the risk-reward ratio for long-term investors.
According to Bloomberg data, the Nifty 50’s earnings over the past five quarters demonstrate significant volatility rather than a consistent trend. After steady growth in Q4FY25 and Q1FY26, earnings saw sharp fluctuations: a dramatic rise of +27.6% in Q3FY26, followed by an equally severe decline of -24.8% in Q4FY26. This volatility reflects sectoral divergence: commodity sectors (oil and gas, metals) drove growth, while financials remained weak with compressed margins. Underlying earnings quality appears fragile, with consensus expectations lowered amid strained revenue growth and narrowing margins at India Inc.
Amid global macroeconomic uncertainty, how is The Wealth Company Mutual Fund positioning its equity portfolios to navigate this environment while maintaining long-term return potential?
At The Wealth Company Mutual Fund, our investment philosophy is rooted in a combination of top-down and bottom-up stock selection, with a strong emphasis on earnings visibility, balance sheet quality and good governance. Given global uncertainties ranging from geopolitical developments to interest rate cycles, we focus on companies that demonstrate resilient cash flows, scalable growth models and prudent capital allocation. Our portfolios maintain a diversified approach across sectors and market capitalizations likely to benefit from India’s structural growth, as well as some tactical investment opportunities during these volatile times. The idea is to stay invested in companies that can compound profits over several years rather than trying to time short-term macroeconomic cycles.
What do you think of small cap stocks? Are they attractive now? Is valuation still a concern?
There has been considerable interest in small caps over the past few years and, as has been seen many times before, valuations in some pockets have outperformed fundamentals. However, the recent correction and consolidation has helped bring valuations closer to long-term averages in several segments. It is important to remember that the small cap universe is extremely diverse. The decline has not been uniform across all stocks, as they have varied strengths and growth potential, many of which are now available at better valuations. For long-term investors, small caps continue to offer the opportunity to participate early in the growth journey of emerging companies, provided that investments are made using a disciplined, research-driven approach and a long-term horizon.
Which sectors of the market do you think are in an ideal situation of reasonable valuations and high growth heading into FY27?
As we approach FY27, we see exciting opportunities across sectors aligned with India’s structural economic drivers. Areas such as manufacturing and industry, especially those that benefit from the investment cycle and supply chain diversification, remain attractive. We also see opportunities in certain financial services, capital markets, technology companies, niche consumer themes and export-oriented companies gaining global market share. In the broader market, several emerging companies in these segments fall into the small- and mid-cap segment, reinforcing our belief that bottom-up stock selection can generate significant alpha over the long term.
If you were to prepare a wallet At this point, for an investor with a moderate risk appetite and a 4-5 year risk horizon, how would you allocate it between gold and silver, stocks and debt?
For an investor with a moderate risk appetite and a horizon of 4 to 5 years, diversification remains essential. A balanced allocation might look like 65-70% in equities, 15-20% in debt, and 10-15% in precious metals dominated by gold as a hedge against macro uncertainty. Within the equity allocation, investors should ideally have exposure to large caps for stability and small and mid caps for growth potential. This combination helps balance volatility while enabling participation in India’s long-term growth opportunities.
What advice would you give to investors who have recently dabbled in small cap funds but find themselves with no returns or at a loss?
We understand investors’ concerns. Small caps are inherently more volatile in the short term, but they have historically proven to be profitable in the long term. Periods of moderate returns or temporary declines are not unusual. If the investment horizon remains long-term, it is generally advisable to stay invested rather than reacting to short-term market movements. In fact, investing consistently during correction periods often improves long-term results. The key is to be patient and allow the underlying profits of the businesses to be reflected over time.
What do you think of IT stocks? Are valuations too attractive right now or is the AI doomsday scenario real?
The IT industry is going through a period of recalibration due to global economic uncertainties and prolonged decision-making cycles on discretionary spending. As a result, valuations of several companies have corrected from prior highs. Although the near-term outlook depends on global demand conditions, long-term structural factors remain intact. Technologies such as AI, cloud and digital transformation have the potential to expand the opportunity set rather than diminish it. Selective opportunities exist and many companies are adapting their business models to capture emerging trends.
Overall, what is your market outlook for FY27?
India continues to stand out as one of the most compelling long-term growth countries in the world, supported by favorable demographics, policy continuity and an ongoing investment cycle. Although markets may experience intermittent volatility due to evolving global circumstances, the underlying earnings trajectory of Indian companies remains encouraging. From a medium to long-term perspective, we remain bullish on equities, particularly in the broader market, where emerging companies are well placed to benefit from India’s economic expansion. For disciplined and patient investors, FY27 could present significant opportunities for long-term wealth creation.