Speaking to CNBC-TV18, Vartak said historical trends suggest that after a prolonged downturn, small caps typically see a strong recovery. “The average, or almost the minimum upside during this bottom-to-top phase is about 92%,” he noted, adding that these are probability-driven indicators rather than guarantees.
His comments come as broader markets show signs of stabilisation after a volatile period. Dalal Street extended gains for a second straight week, supported by global cues, with benchmark indices rising over a percent. Midcaps outperformed, surging nearly 4%, while all sectoral indices, barring autos, ended higher. Investor wealth rose by about ₹14 lakh crore during the week.
Vartak said the current market setup reflects a confluence of factors typically seen near cycle bottoms, including the end of a small-cap correction phase, weak seasonal trends, and heightened global uncertainty. “When you have a confluence of these three big factors, generally that’s the time you need to take advantage of the market,” he said.
He pointed out that small-cap cycles tend to last between 2.5 to four years, with corrections spanning nine to 18 months. With the last peak seen around September 2024, markets are now approaching the tail end of that corrective phase, indicating a potential turning point.
Despite ongoing concerns around global growth and commodity prices amid the West Asia war, Vartak said markets tend to look ahead. “Once the market processes this over three to five weeks, and if things on the ground haven’t worsened as much, especially in small caps, then the outlook improves,” he explained.
On portfolio strategy, Vartak emphasised staying invested through cycles rather than making aggressive cash calls. He said his approach focuses on companies capable of delivering at least 20% earnings growth over the next two to three years. Instead of exiting markets during downturns, he prefers reallocating capital within sectors where valuations have corrected sharply.
He highlighted opportunities across segments such as managed office spaces, real estate-linked plays, solar modules, export-oriented businesses, and select financials, many of which have seen corrections of 30–50% despite maintaining strong growth prospects.
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Vartak also pointed to structural tailwinds in sectors like textiles, supported by free trade agreements, currency depreciation, and shifting global supply chains. Meanwhile, he remains cautious on expensive pockets of the defence sector, noting that high valuations could limit returns despite strong underlying demand.
Overall, he said the current environment offers selective opportunities across the broader market, particularly in segments where valuations have reset meaningfully.
