Motilal Oswal lifts India mid and smallcap allocation to 50%

Motilal Oswal Private Wealth has increased its overweight position in mid- and small-cap stocks to 50% of its equity portfolio, while maintaining a neutral overall stance on Indian equities. Chief Investment Officer Sandipan Roy said the decision reflects a fundamental reassessment of where value and growth are converging in the domestic market. "We have increased our overweight to mid- and small-caps given their stronger representation in high-growth, new-economy sectors and the improvement in valuations," Roy said.

The reallocation underscores a notable pivot in foreign institutional capital within India. Investors are rotating away from benchmark-heavy sectors that have historically driven index performance. Financials, information technology, fast-moving consumer goods and automobiles are seeing outflows. In their place, foreign capital is concentrating on industrial and manufacturing themes, specifically capital goods and metals. Because these cyclical and structural growth areas have a higher concentration of mid- and small-cap listings, they are acting as the primary beneficiaries of this institutional rotation.

The composition of these smaller indices reveals a deeper shift in the Indian economy that market professionals are now pricing in. Healthcare serves as a primary example. While large-cap healthcare exposure is typically confined to established pharmaceutical manufacturers, mid- and small-cap indices capture the broader medical ecosystem. This includes hospitals, diagnostics, biotechnology, contract development and manufacturing organisations, medical devices and healthcare technology. These sub-sectors represent distinct, high-growth trajectories that are inaccessible through India's primary large-cap benchmarks.

Despite the constructive view on smaller companies, the firm is exercising caution regarding market timing and execution. Prevailing macroeconomic uncertainties are prompting a differentiated deployment approach across product types. Roy advises deploying capital as a lump sum for hybrid strategies at current levels. Conversely, investors utilising pure equity-oriented strategies are being urged to stagger their investments.

This staggered approach is designed to manage volatility while retaining the ability to capitalise on market dislocations. Roy noted that any meaningful market corrections should be viewed as strategic entry points for aggressive equity exposures. The overarching strategy suggests that while broad Indian market returns may remain range-bound, alpha generation is increasingly dependent on targeted exposure to the mid- and small-cap manufacturing and new-economy complex.