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With broader market valuations looking stretched, finding the right risk-reward balance is crucial. Hitesh Zaveri, Head of Listed Equity at Axis AMC, breaks down why large caps currently offer a safer margin of safety over small caps. Discover his tactical playbook for navigating macro volatility, the outlook for IT and financials, and how to position your portfolio for the next 3–5 years.

Edited excerpts from a chat:

How would you assess the current market environment from a risk-reward perspective for long-term investors?
From a long-term perspective, the risk-reward remains reasonably balanced, though not outright compelling in the near term. Markets have delivered strong returns over the past 12–18 months, leading to pockets of stretched valuations, especially in the broader market. However, India’s structural growth story remains intact, driven by strong domestic demand, improving balance sheets, and policy continuity.

For long-term investors, the key is to temper return expectations and focus on earnings compounding rather than valuation re-rating. Periods of consolidation may be viewed as opportunities to accumulate quality businesses rather than reasons for concern, subject to individual risk appetite and investment strategy.

With crude and rupee playing spoilsport, how should investors deal with macro uncertainty? Which sectors look best placed?
Macro volatility, whether from crude prices, currency movements, or global interest rates, is largely uncontrollable and often short-lived relative to investment horizons. Investors should avoid overreacting to these variables and instead focus on sectors with strong pricing power and domestic drivers.

In the current environment, sectors such as financials, industrials, and select consumption themes remain well-positioned. Additionally, domestic-facing businesses with limited import dependence tend to navigate such volatility better. Export-oriented sectors can also provide a natural hedge if currency weakness persists.
Financials remain dominant. What is your view on banks and NBFC earnings amid changing liquidity conditions?
The financial sector continues to be structurally strong, supported by healthy balance sheets, moderating credit costs, and stable demand for credit. While liquidity conditions have tightened somewhat, we believe this reflects normalization rather than stress. Banks, particularly large private sector banks, are well placed given their strong liability franchises. NBFCs may see some pressure on margins due to funding costs, but well-managed players with strong risk frameworks should continue to deliver steady growth. Overall, earnings momentum should remain resilient, albeit with some moderation from the recent peak levels.
Which segment offers better opportunities: large, mid, or smallcaps?
At this stage of the cycle, large caps offer relatively better risk-reward compared to mid- and small-caps, primarily due to more reasonable valuations and better earnings visibility. Mid- and small-caps still present selective opportunities, particularly in niche segments, but the margin of safety has reduced significantly in several pockets. Investors should be more discerning and avoid chasing momentum.

Mid and smallcap valuations are elevated. Can earnings growth justify this?
Earnings growth has been strong in the mid- and small-cap space, but valuations in certain segments are pricing in a continuation of very high growth rates. While some companies will deliver on these expectations, the dispersion between winners and losers is likely to increase. Sustaining current valuation multiples will require consistent execution and a favourable macro environment. Hence, bottom-up stock selection becomes critical, and investors should focus on quality, governance, and balance sheet strength.

Will the broader market momentum seen in April continue?
Near-term momentum is always difficult to predict and often driven by flows rather than fundamentals. While earnings have been supportive, especially in the broader market, the strong rally has already priced in a lot of optimism. We may see periods of consolidation or volatility in the near term. A more sustainable market trajectory would ideally be led by earnings growth catching up with valuations rather than continued multiple expansion.

What portfolio positioning would you recommend for a 3–5 year horizon?
For a 3–5 year horizon, investors should focus on building a diversified portfolio anchored around high-quality compounders. A balanced allocation between large caps and selectively chosen mid-caps would be appropriate. Most importantly, investors should stay disciplined with asset allocation and avoid overexposure to overheated segments.

Should investors stay away from IT stocks or are valuations attractive?
The IT sector is currently in a transition phase, with near-term demand softness due to global macro uncertainties. However, this has also led to more reasonable valuations compared to historical averages. For long-term investors, selective exposure to high-quality IT companies can be considered, especially those with strong client relationships and differentiated capabilities. While the sector may not see immediate growth acceleration, it remains a structurally important part of India’s export story.

A spokesman for the University of Cambridge said: “We understand the challenges around cost of living, and have introduced several measures in response, including a supplement of 2.5% of basic pay for employees on lower pay grades, raising the minimum starting salary for research assistants and increasing paid family leave.

According to stock exchange filings, multiple entities under Saif Partners participated in the bulk deals, selling shares worth about ₹964 crore. Saif Partners, which is among Paytm‘s earliest investors, was rebranded as Elevation Capital in 2020.

Societe Generale, Marshall Wace Investment Strategies and Morgan Stanley Asia were among the major participants in these block deals.

Over the past nearly two years, Elevation Capital and AntFin — the financial affiliate of Alibaba Group, have emerged among the biggest sellers in Paytm through block deals.

According to BSE data, around 8.5 million shares changed hands on May 22, with Saif III Mauritius selling around 5.6 million shares and the others being multiple different funds of Saif Partners.

Historical data suggest that Ant Financial has also sold 85.3 million shares across multiple tranches and bulk deals.

The Noida-headquartered company has seen several early investors liquidate their holdings. Paytm has also been encouraging Chinese investor Ant Financial to pare its stake in the firm.
Paytm closed FY26 with a net profit of ₹556 crore — its first-ever full-year profit — and reported operating revenue of ₹8,437 crore, up 22% from ₹6,900 crore a year earlier.
In April 2026, Paytm became an Indian-owned and controlled company after domestic investors raised their collective stake to around 50%. The fintech company currently trades at a market capitalisation of ₹71,220 crore ($7.4 billion).
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

The latest Market Talks covering Financial Services. Exclusively on Dow Jones Newswires at 4:20 ET, 12:20 ET and 16:50 ET.

0535 ET – CVC Capital Partners has teamed up with Groupe Bruxelles Lambert to launch a 10.73 billion euro bid for Italian drugmaker Recordati, in a move that might prelude future deals, RBC Capital Markets’ Natalia Webster and Charles Weston say in a research note. The bidders’ strategic rationale centers on Recordati’s requirement for increased research-and-development spending as well as future mergers and acquisitions, the analysts say. Amsterdam-listed buyout group CVC is Recordati’s controlling shareholder and the bid is aimed at taking Recordati private, the analysts say. Shares in Recordati fall 0.3%, while CVC and GBL both trade 1% higher. (adria.calatayud@wsj.com)

0531 ET – CVC Capital Partners’ bid to take Italian drugmaker Recordati private alongside Groupe Bruxelles Lambert allows the Amsterdam-listed buyout group to move its stake in the company from one fund to another, Equita Sim’s Martino De Ambroggi says. The biggest shareholder in Recordati is a company ultimately controlled by CVC Fund VII called Rossini and has committed to tender to the offer its whole 46.8% stake, the analyst says. CVC participates in the takeover bid through a new fund, CVC Fund IX, and there are other minority investors such as Recordati Chairman Andrea Recordati, he adds. The CVC-GBL consortium said the offer is subject to achieving ownership of at least two-thirds of Recordati’s share capital. Shares in CVC rise 1.2%. (adria.calatayud@wsj.com)

0513 ET – Groupe Bruxelles Lambert’s investment in Italy’s Recordati to take the drugmaker private alongside CVC Capital Partners looks like a good, but risky move, ING’s David Vagman says in a research note. The Belgian investor is putting up 1.3 billion euros, which fits within its investment range of 500 million to 1.5 billion euros but is toward the higher end, the analyst says. “We find the move very interesting, showing self-confidence, but also an appetite for risks, in term of operation and leverage, which might surprise investors.” The offer also shows that GBL is keen on healthcare, a sector where it is already present in services and medical-technology, ING says. Shares in GBL rise 0.9%. (adria.calatayud@wsj.com)

The latest Market Talks covering the Health Care sector. Published exclusively on Dow Jones Newswires at 4:20 ET, 12:20 ET and 16:50 ET.

0955 ET – The American Society of Clinical Oncology published an abstract of a study that JPMorgan calls “highly encouraging” for the targeted chemotherapy sac-TMT treatment jointly developed by Merck and Chinese biotech firm Kelun-Biotech. “Sac-TMT reduced the risk of death or progression on the combined population by 65%,” the analysts say. However, they also say in the note that the drug was compared to Merck’s own Keytruda monotherapy, which is not the standard of care in most parts of the world, making drawing comparisons difficult. “The data is nonetheless solid…and continues to derisk sac-TMT,” the analysts say. Merck is up 4%.(nicholas.miller@wsj.com)

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