Motilal Oswal Private Wealth has updated its model portfolio, raising mid-cap and small-cap weightage to 50% while cutting large-caps to 40%. The firm suggests that earnings growth is now spreading beyond top-tier companies, particularly in sectors like defense and specialized manufacturing. Investors are advised to follow a staggered investment approach to manage potential market volatility.
Motilal Oswal Private Wealth has officially adjusted its model portfolio for 2026, signaling a shift in how it views market opportunities across different company sizes. The firm has raised its recommended allocation to mid-cap and small-cap stocks to 50%, a significant increase from its previous 40% target. To balance this, the allocation for large-cap and hybrid strategies has been reduced from 50% to 40%. The 10% allocation toward global equities remains unchanged.
Valuations and Earnings Outlook
This rebalancing is based on the firm's view that the recent correction in the equity market has made valuations for mid-sized and smaller companies more attractive. According to the firm’s analysis, earnings growth is no longer limited to the country's largest firms. Instead, the growth cycle is expected to become more widespread, reaching companies outside the standard benchmark indices. By shifting focus, the firm aims to capture growth in areas where it sees more potential for long-term expansion.
Focus Sectors and Stock Selection
Motilal Oswal identifies specific sectors where it believes the next phase of growth will occur. These include defense, capital goods, healthcare services, diagnostics, specialized manufacturing, and wealth management. The report notes that leadership within these sectors is evolving faster than in previous cycles, making careful stock selection more important than ever. For example, the firm observes that healthcare service providers and diagnostic chains currently show stronger growth trends compared to traditional pharmaceutical manufacturers. Similarly, in the financial sector, firms involved in wealth management and stock exchanges are highlighted as distinct opportunities compared to conventional banks.
Risk Management and Market Stance
Despite the increased weight in smaller companies, the firm maintains a neutral overall stance on Indian equities. It advises investors to avoid deploying capital in a single lump sum, suggesting instead that a staggered investment approach is better suited for the current market. While the medium-term outlook for India is supported by factors like cooling inflation, the possibility of future interest rate cuts, and a pick-up in private spending, the firm also warns that investors should remain prepared for volatility. Factors such as geopolitical tensions and unpredictable trade developments continue to pose risks to near-term stability. The primary monitorable for investors going forward will be the actual pace of earnings growth in these smaller segments and how these companies handle market volatility compared to their larger, more established counterparts.