Broad based rallies unlikely; it's a stock-picker's market, says Nikhil Rungta of LIC MF

With volatility roiling the markets and mid and smallcaps stock correcting sharply in the last few months, investors are being urged to recalibrate rather than retreat. LIC Mutual Fund’s Nikhil Rungta, who manages an AUM of Rs 12,688 crore, believes the current landscape rewards patience, discipline, and sharp stock-picking over broad-based bets. In this interview, he discusses the post-rate-cut outlook for banks and NBFCs, the resilience of domestic inflows, FII fatigue, the rise in promoter block deals, and why India’s market is transitioning into an era of accountability over hype. Read the edited excerpts:
 

Q1. Fund managers often talk about long-term strategies, but considering the current volatile market, how should investors rejig their portfolios? What should be their strategy for the Indian markets for now?
Ans: A volatile environment doesn’t call for abandoning long-term strategies, but it certainly requires recalibration. In the month of May 2025, equity mutual funds have seen SIPs reaching Rs 26,688 crore and 8.56 million active accounts. Investors may view this phase as an opportunity to realign portfolios – trimming exposure where valuations are stretched and gradually building positions in segments showing resilience but still trading at reasonable multiples. India’s long-term growth drivers may remain intact primarily based on – domestic demand, manufacturing momentum, and a capex revival. Above all, staying invested with staggered deployment is more prudent than attempting to time the market.
 

Q2. What is your view on banking (PSU and private lenders) and finance including NBCs, HFCs, gold loan players, brokers and wealth management players after the recent rate cuts in India? Do you think rate cuts will boost consumption, particularly the luxury or discretionary sector?
Ans: The recent rate cut is a positive signal – especially for the lending ecosystem. Private banks with low-cost deposit franchises can be amongst the best places to benefit, while PSU banks may continue to enjoy a cyclical tailwind on credit growth and asset quality improvement. Among NBFCs and HFCs, the advantage may lie with those who maintain asset–liability discipline and pricing power. Wealth and broking firms could see improved sentiment-led activity. As for consumption, rate cuts help, but they’re not a silver bullet. Mass consumption might get a boost through better credit availability, but luxury and high-end discretionary segments need income optimism and demand visibility, which may take time to build.
 

Q3. How do you see broader markets faring in FY26? Do you think they will outperform larger peers? What pockets of mid and smallcaps are still undervalued as per your opinion?
Ans: Mid and small caps have corrected significantly from their previous highs. The key would be earnings durability and balance sheet strength. Focused areas include capital goods, defence, logistics, renewables, and rural consumption and specific plays in financial inclusion and tech-enabled businesses which are looking promising. We’re also seeing attractive bottom-up stories in domestic consumption and specialty chemicals. But this space demands far greater due diligence. Broad-based rallies are unlikely, and it may continue to remain a stock picker’s market. 
 

Q4. Domestic institutional investors have been buoyant despite the broader market volatility, but overseas investors have remained net sellers. What is boosting DIIs confidence but failing to lift FIIs morale? Do you think strong SIP inflows are making it tough for fund managers to deploy funds?
Ans: Domestic investors have shown remarkable composure, supported by consistent SIP flows and a growing belief in India’s long-term fundamentals. This structural domestic support has become the market’s shock absorber. On the other hand, FIIs remain guided by global macro variables – U.S. interest rates, Emerging Market allocations, and geopolitical risk. Despite India’s relative resilience, many global investors remain in risk-off mode. As for fund managers, high SIP inflows are a welcome challenge. Yes, deploying in a frothy market demands patience and discipline, but this also reinforces the need for staggered buying, cash cushions, and high-conviction positions rather than forced allocation.
 

Q5. There have been a lot of block deals recently by promoters and private equity funds, particularly in the newly listed companies. This sale is beyond the minimum public shareholding norms and the market is rampantly absorbing such sales. However, these recently companies have failed to outdo the market in 1-3 years’ timeframe, but down sharply from IPO and issue price. How do you do this? Does it alarm you?
Ans: The spate of block deals reflects both liquidity in the system and a market that’s become more discerning. Indian markets continue to see a large amount of promoter PE & VC selling which crossed Rs 40,000 Cr in June so far (till 18th June 2025). Similar trend was seen in May also (Rs 43,000 Cr selling). Despite the large selling, domestic institutional investors have provided crucial support with net purchases worth Rs 49,000 Cr plus till 18thJune 2025. While some believe that the massive selling underscores valid concerns about current unsustainable valuations, others term this as a regular practice as PE investors eventually look for an exit and promoters sell their shares to meet their personal financial requirements. While these exits are not inherently alarming, they do raise questions when companies consistently underperform post-listing. What we’re witnessing is a reset in expectations – the market is no longer willing to pay a premium for growth without delivery. It’s a sign of maturity. Promoters and PE funds monetizing stakes is understandable, but the onus is now firmly on companies to justify valuations through consistent performance, transparency, and governance. The easy IPO money phase is over; we are now entering an era of accountability.

(Source: AMFI, NSE, BSE, RBI, Bloomberg, LICMF Research)

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