Porinju Veliyath on Small Caps, AI, Defence Stocks and India’s Wealth Creation Story – Markets

According to Veliyath, the sharp rally witnessed in small- and mid-cap stocks over the previous four years had led to stretched valuations, with several stocks rising five to 30 times during the period.

“The small- and mid-cap segment has corrected very well. Earlier, many investors were uncomfortable with valuations after the extraordinary rally. A lot of fresh money came into the market through SIPs and many stocks became overbought and overvalued,” he said.

While he believes some stocks may still require valuation corrections, Veliyath said the broader segment appears to have bottomed out.

“In the last two months, several small- and mid-cap stocks have risen 20%, 30%, 40% and even 50%. Some special situations have doubled. It is again time to cherry-pick stocks in the small- and mid-cap space. It can be rewarding,” he said.

Opportunities Beyond Sectors

Veliyath said investors should focus on individual businesses rather than sectors, as stock performance has varied significantly even within the same segment.

“There are companies whose stocks have corrected 40% to 60%, but they continue to have earnings visibility and growth potential. In some cases, temporary events have impacted earnings and the market has punished them severely,” he said.

He added that some fundamentally strong and well-managed businesses are now trading at significantly lower valuations despite maintaining long-term growth prospects.

“There could be companies facing temporary challenges, such as rising raw material costs due to geopolitical developments. Such situations may offer opportunities to buy quality businesses at attractive valuations,” he said.

India at 12 Years of PM Modi: ‘Every Indian Should Be Proud’

Reflecting on the past 12 years under Prime Minister Narendra Modi, Veliyath said India has undergone a significant transformation driven by political stability and major reforms.

“Every knowledgeable Indian should be proud of what has happened in the last 12 years,” he said.

He pointed to achievements such as housing construction, expansion of digital payments through UPI, Jan Dhan account penetration and sanitation initiatives as examples of large-scale execution.

“If you list out the numbers, it is amazing. No other leader in this country could have done it,” he said.

Veliyath credited stable political leadership for enabling long-term reforms and creating a foundation for sustained economic growth.

“India has been lucky to have strong and stable political leadership over the last 12 years, and we have utilized that opportunity well,” he said.

Reforms Needed Despite Progress

While praising India’s progress, Veliyath said several structural reforms still need attention.

“There is a long way to go in areas such as the judiciary, bureaucratic processes and tax simplification. There are still aspects that need to be made more rational, reasonable and market-friendly,” he said.

Comparing India with China, he noted that India still has substantial ground to cover despite recent gains.

“We are now a little over a $4 trillion economy, while China is around a $19 trillion economy. But we have doubled our per-capita income over the last 12 years, and that is not a small achievement,” he said.

He added that several major reforms undertaken during the period have positioned India for stronger future growth.

Equity Markets Poised to Benefit

Veliyath believes India’s expanding economy will continue to support wealth creation through equities.

“The market breadth has improved significantly, but India is still not a very large stock market. We are evolving into a much bigger market alongside the economy,” he said.

According to him, rising domestic participation and increasing household allocation to equities will remain key drivers of long-term wealth creation.

“The value of India has increased significantly in the global arena. India is becoming an inevitable economic and political force, and these developments will be reflected in the stock market over time,” he said.

Defence Theme Attractive but Valuations a Challenge

On the defence sector, Veliyath described the Make in India initiative as a significant step for the country’s security and economic development.

“The defence manufacturing theme is amazing. It is important for national security, economic security and industrial development,” he said.

However, he cautioned that stock valuations in parts of the sector already reflect strong future growth expectations.

“Some of the smaller defence-related companies are already priced for the next five years. Whether investors should enter at these valuations is a difficult question,” he said.

While acknowledging opportunities in listed and upcoming defence companies, he said investors need to remain selective.

“There is no doubt that it is an exciting sector to watch, but predicting whether the current momentum will continue is not easy,” he added.

AI, Healthcare and Pharma Offer Long-Term Potential

Among sectors, Veliyath expressed optimism about software services companies that can benefit from the AI revolution.

“Some IT companies, especially in the mid-cap space, are well-positioned to leverage AI through implementation and service opportunities. Investors should closely watch these businesses,” he said.

He also remains positive on healthcare and pharmaceutical companies.

“Healthcare and pharmaceuticals are sectors that are unlikely to see any major slowdown. Demand for healthcare services and pharmaceutical products will continue to grow,” he said.

While stock performance may vary in the near term, Veliyath believes both AI-linked technology companies and healthcare businesses offer attractive long-term opportunities for investors.

(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)