The correction in mid- and small-cap stocks over the past few weeks could be creating fresh investment opportunities across sectors, with auto ancillaries emerging as one of the more promising themes, according to Rajesh Kothari, Managing Director of AlfAccurate Advisors.
In an interview with CNBC-TV18, Kothari identified auto ancillaries, artificial intelligence (AI) and healthcare as sectors where he sees potential. While improving valuations have made select stocks attractive again, he believes the opportunity in auto ancillaries is backed by several structural growth drivers, ranging from premiumisation and technology adoption to export opportunities.
So, what is driving the interest in these sectors, and which companies could benefit?
Why auto ancillaries could be a major investment theme
Auto ancillaries are benefiting from a combination of industry consolidation, technology leadership and rising content per vehicle, making the sector an interesting investment opportunity, Kothari said.
One of the key advantages is the limited number of players in several segments. Whether it is shock absorbers or airbags, there are only three or four companies operating in each segment. This gives established players an opportunity to benefit from their market position and technological capabilities.
The other big driver is premiumisation. As consumers opt for vehicles with more features, the number of components and the value of content per vehicle are also increasing. Kothari pointed to the growing adoption of airbags, with the number rising from two to six per vehicle. He also noted that around 75% of SUVs now have sunroofs.
The expansion of Advanced Driver Assistance Systems (ADAS) norms is creating another opportunity, with potential demand across both two-wheelers and four-wheelers.
Beyond domestic demand, auto ancillary companies could benefit from export opportunities, currency advantages and Europe’s shift in supply chains.
Kothari believes these factors make the sector a potential winner even if the AI-driven market enthusiasm were to reverse.
Aerospace and defence is another area where Kothari sees additional growth potential for certain auto ancillary companies. Some businesses already have order books of around ₹2,000-4,000 crore and approvals from some of the world’s top five supply-chain players.
For these companies, aerospace and defence is not merely a future possibility. They already have established capabilities and order-book visibility, giving them a stronger starting point than businesses that are only beginning to build a presence in the sector.
Kothari believes companies with proven capabilities and existing orders are better placed to benefit from the opportunity than those that could take another four years to build meaningful order books.
Why the correction has made select AI stocks attractive again
AI is another theme where Kothari sees opportunities after the recent correction.
He said several stocks had earlier moved into what he described as the euphoric valuation zone as investors became increasingly optimistic about the AI opportunity. AlfAccurate Advisors had booked profits in some of these companies during that period.
However, sentiment has turned pessimistic over the past 30-40 days. Some of the large leaders in the space have corrected by around 20-40% over the last 40-50 days, making valuations more attractive.
Kothari believes the correction has created an opportunity to identify companies that can deliver sustained earnings growth rather than simply benefit from the broader AI narrative.
He expects select businesses to report enduring earnings growth over the next three to four years, supported by strong order books. This is where he sees the opportunity, rather than in taking a blanket view on all AI-related stocks.
Healthcare and pharma also offer opportunities
Healthcare is another sector on Kothari’s investment radar, particularly hospitals and pharmaceutical companies.
While the hospital sector faces an overhang from a court ruling, he believes the scope for further regulation could be limited beyond a point. He also sees potential in pharmaceutical companies.
Kothari said AlfAccurate Advisors has been adding to some existing holdings as well as buying new names across its preferred themes over the past one to two weeks. However, he did not disclose most of these stock names.
Improving earnings and valuations support the broader market
Kothari’s sectoral preferences are also underpinned by his positive view of the broader market, supported by improving corporate earnings and more reasonable valuations.
BSE 500 companies that had announced results at the time of the interview had delivered revenue growth of 18%, EBITDA growth of 22% and profit growth of 22%, he said. This marks a significant improvement over FY26, when revenue and profit growth were below 8-9%.
He also pointed out that market valuations had returned to levels last seen around September 2024, making them more supportive.
“Markets are bound to do well because valuations are very supportive,” Kothari said.
His investment approach remains focused on companies with market leadership, a sizeable addressable opportunity and the ability to deliver sustained earnings growth.
Auto ancillaries to AI: Where Rajesh Kothari sees investment opportunities after market correction