Bottom-up stock picking key for outsized returns in current market: Sunny Agrawal

As geopolitical tensions in West Asia continue to keep broader markets on edge, investors may need to look beyond benchmark indices to uncover meaningful wealth creation opportunities. According to market expert Sunny Agrawal from SBI Cap Securities, the recent earnings season has highlighted a growing divergence between the performance of large-cap companies and the broader mid- and small-cap universe.

Speaking to ET Now, Agrawal said the latest earnings cycle clearly demonstrated stronger growth momentum among mid- and small-cap companies compared to the Nifty 50 constituents.

“When it comes to the earnings season which has just recently concluded, one thing is pretty clear—that the earnings momentum is pretty robust in the mid- and small-cap pack as compared to the frontline companies. We have seen around 15% to 20% earnings growth for the mid-cap as well as small-cap pack, compared to single-digit earnings growth for Nifty 50 companies. That is the reason we believe that the wealth creation opportunity ultimately lies in pockets which are not part of benchmark indices.”

Bottom-Up Stock Picking Remains Key

Agrawal believes investors should focus on identifying niche growth stories rather than relying solely on index-linked investing. Several sectors, particularly those linked to India’s power infrastructure buildout, continue to offer attractive opportunities.

“Whether it is wires and cables as a segment, which is a power ancillary, or whether it is the transformer or power equipment sector, which is predominantly not a part of Nifty 50 companies, ultimately it is a bottom-up stock picker’s market. We need to identify growth stories which may not be part of the Nifty 50.”
While he expects the benchmark index to remain range-bound until geopolitical uncertainties ease, he sees substantial opportunities across segments such as auto ancillaries, cables and wires, power ancillaries, B2B jewellery companies, and structural steel tube manufacturers.
Agrawal acknowledged that rising raw material and crude oil prices could exert short-term pressure on margins during the first quarter. However, he remains optimistic about the broader earnings outlook for FY27, particularly if geopolitical tensions begin to subside from the second quarter onward.
EV Bus Opportunity Is Significant, But Patience Is Essential
The government’s recently announced electric bus initiative has generated excitement across the industry, with companies such as JBM Auto and Olectra Greentech expected to benefit. However, Agrawal cautioned investors against expecting immediate and consistent earnings growth from the sector.

“The opportunity size definitely is pretty huge. In fact, there is an opportunity for each and every player to grab a share. But ultimately, announcing a flagship scheme and rolling it out is a different ballgame.”

He noted that electric bus and truck sales remain heavily dependent on government spending and state transport undertakings, often resulting in uneven quarterly sales trends.

“Long term, we definitely continue to remain bullish on EV buses as a theme, but one needs to deploy patient capital if somebody wants to create wealth out of this story.”

According to him, manufacturing capacity is not a constraint, as major players, including incumbent commercial vehicle manufacturers, have already built significant capabilities to address future demand.

Coal India Rally May Have Run Ahead of Earnings Growth
On the recent surge in Coal India shares, Agrawal adopted a more measured stance.

While acknowledging an improvement in fourth-quarter earnings, he does not foresee a dramatic acceleration in profitability during FY27.

“Although there has been some improvement in terms of earnings growth for quarter four, not many fireworks are expected for FY27 in terms of earnings. Post the OFS, we have seen a very sharp up move, maybe on the back of very cheap valuations and the high dividend yield that Coal India commands.”

Instead, he believes investors looking to benefit from India’s long-term energy growth story may find better opportunities elsewhere within the broader power and energy ecosystem.

Titan Continues to Benefit from Organised Market Shift
Agrawal remains positive on jewellery and lifestyle major Titan, citing its leadership position and continued gains from the shift of consumers from the unorganised sector to organised retail channels.

“The addressable market size is pretty large across all categories, whether it is eyewear, watches or the accessories segment. The shift from unorganised to organised is something which is playing out across all jewellery players, and Titan, being a market leader, is definitely benefiting from that.”

He believes the company can comfortably deliver a 15% to 17% earnings CAGR over the next four to five years.

However, he also highlighted valuation concerns.

“We continue to remain bullish. The only point I would like to derive is that valuations continue to remain slightly expensive. We believe the fair value of the business is closer to ₹4,500-4,600.”

Consumer Durables Entering a Recovery Phase
Turning to the consumer durables segment, Agrawal suggested that the worst may now be behind the sector as inventory levels normalise and demand remains healthy.

He expressed a preference for business-to-business manufacturers over consumer-facing brands, arguing that the former offer more attractive opportunities.

“Things are getting better as the system inventory gets drawn down. We have seen some margin pressure during quarter four, but it looks like the worst is behind for the entire sector.”

Among his preferred names are contract manufacturing and electronics players such as Amber Enterprises and PG Electroplast.

“Both have disappointed in terms of margins during quarter four, but what we believe is that FY27 should be a normalised year in terms of margins going forward. Demand continues to remain robust, the way the heatwave is playing out and the way El Niño conditions are being forecast. It seems that FY27 should be a far better year in terms of earnings. So, we would like to ride through PG and Amber.”

Key Takeaways
Agrawal’s investment approach remains firmly rooted in stock selection rather than index investing. While benchmark indices may continue to consolidate amid global uncertainties, he sees compelling opportunities emerging across mid- and small-cap companies tied to power infrastructure, industrial manufacturing, consumer durables and organised retail themes. For investors willing to look beyond the index and maintain a long-term horizon, these pockets could continue to offer stronger earnings growth and wealth creation potential in the years ahead.