Market correction made mid- and small-caps attractive, says Edelweiss MF's Bhattacharya

Subscribe to enjoy similar stories.With equity markets roiled by the West Asia war and sharp swings in mid- and small-caps, investors are grappling with how to position portfolios.In an interaction with Mint, Trideep Bhattacharya, president and chief investment officer-equities, Edelweiss Mutual Fund, with average assets under management of ₹1.65 trillion in the March quarter, shares why he remains cautiously optimistic and how investors should navigate the current phase. Edited excerpts:

Where do you see markets heading from here, given the recent volatility?We are incrementally positive on markets, particularly from a near-term perspective.

We entered this geopolitical phase—the US-Israel-Iran conflict—with fundamentals on a strong footing, macro conditions stable for India, and earnings growth or upgrades starting to come through on a bottom-up basis.The war pushed up oil prices and had some impact on businesses. However, if the geopolitical impact is contained within April, the earnings impact would be minimal—roughly 2–3% (on Nifty 50 earnings).

Compare that with the market correction, which has been in double digits.Given that we are probably past the worst point of the geopolitical conflict, from a near-term perspective, I do think that markets will look forward to earnings recovery once we digest any transient fallout of the war.The second factor is valuations. They are now hovering around one standard deviation lower than the five-year average—that makes mid- and small-cap valuations look attractive.