Where to invest: PL Wealth bets on Midcap, flexicap, banks; cautions on IT

Investors looking to allocate money to mutual funds should consider flexi-cap, multi-cap, mid-cap, large-and-mid-cap and banking and financial services funds, according to PL Wealth’s September 2026 Market Outlook. The wealth manager also favours infrastructure and defence-themed funds, while maintaining a cautious stance on IT sector funds amid concerns over artificial intelligence-led disruption and slower revenue growth.

On the debt side, PL Wealth prefers liquid, overnight, money market, low-duration and short-duration funds, arguing that investors should prioritise interest income over making aggressive bets on falling interest rates.

The recommendations come against a backdrop of strong domestic economic growth but rising inflation risks. Elevated crude oil prices, a deficient monsoon and the possibility of a strengthening El Niño could put pressure on food prices and corporate margins. PL Wealth has flagged the possibility of the Reserve Bank of India (RBI) raising policy rates by 25-50 basis points in the third or fourth quarter of FY27.

Despite these near-term risks, the firm’s long-term outlook on Indian equities remains positive, supported by domestic investment, earnings growth and relatively attractive market valuations.

Which mutual fund categories does PL Wealth favour?

In its fund category positioning guide, PL Wealth has an overweight stance on five equity fund categories:

Flexi-cap and multi-cap funds: The firm sees these as a way to participate in opportunities across market capitalisations, with an emphasis on banks, capital goods and metals.

Large-and-mid-cap funds: These offer exposure to both established large companies and mid-sized businesses with growth potential.

Mid-cap funds: PL Wealth points to stronger earnings growth and the performance of the Nifty Midcap 150 as reasons for its preference.

Banking and financial services funds: The outlook is supported by strong bank credit growth, liquidity conditions and expectations of earnings growth in the financial sector.

Infrastructure and defence thematic funds: The firm sees opportunities from defence indigenisation, infrastructure spending, power transmission, renewables and data centres.

The wealth manager has a neutral stance on large-cap funds, recommending selective active exposure rather than passive index strategies. It is underweight on IT and technology sector funds, citing artificial intelligence-related disruption, margin concerns and slower revenue growth.

The report’s preferences are category-level views and do not amount to recommendations to buy specific mutual fund schemes.

Nifty target 27,123: Is there room for further gains?

PL Research has set a 12-month base-case target of 27,123 for the Nifty, implying an upside of around 12% from the index level of 24,208 used in its August 26, 2026 analysis.

The target is based on a valuation multiple of 17.6 times estimated FY28 earnings per share of ₹1,537.

The report also outlines a bull-case target of 30,137 and a bear-case target of 24,971, reflecting the range of possible market outcomes.

At 24,208, the Nifty was trading at 17.3 times its one-year forward earnings, an 11.7% discount to its 15-year average price-to-earnings multiple of 19.6 times. It was also trading at a 14.8% discount to its 10-year average multiple of 20.3 times.

PL Wealth believes this valuation gap provides some support to the medium- and long-term outlook. However, it recommends staggered investments rather than aggressive lump-sum exposure in the near term.

The difference in performance between market segments is another factor informing its strategy. As of August 31, 2026, the Nifty Midcap 150 had gained 13.4% over one year, while the Nifty 50 had declined 1.4%.

Banks, defence and capital goods among preferred sectors

PL Wealth’s sector preferences reflect its expectation that domestic investment and infrastructure spending will remain important drivers of corporate earnings.

The firm’s model portfolio is overweight on banks, capital goods and defence, diversified financials, metals, healthcare, telecom and ports.

Within banking and financial services, it expects credit growth and liquidity conditions to support business activity. Non-food bank credit growth stood at 19.1% year-on-year as of July 31, 2026.

Capital goods and defence are supported by India’s investment cycle, including spending on infrastructure, power, renewables, data centres, semiconductors and defence manufacturing.

The report is more cautious on IT services, consumer companies and automobiles. It flags artificial intelligence-related disruption and slower revenue growth in IT, while higher input costs and moderation in growth could affect consumer and auto companies.

Debt mutual funds: Why PL Wealth prefers short duration

For fixed-income investors, the central recommendation is to focus on accrual rather than duration.

Accrual strategies aim to earn returns through interest income from debt instruments. Duration strategies, in contrast, seek to benefit from changes in bond prices when interest rates move.

PL Wealth prefers the short end of the yield curve, particularly investments with maturities of three months to three years.

The report cites yields of around 7-7.5% on certificates of deposit and 7.3-7.8% on commercial papers. It also favours liquid, overnight, money market, ultra-short-duration and low-duration funds for investors looking to park money or maintain liquidity.

Within debt mutual funds, the positioning guide gives an overweight stance to:

Overnight, liquid and money market funds

Low-duration and short-duration funds

Banking and PSU debt funds, restricted to high-quality AAA-rated or sovereign instruments

The report maintains a neutral stance on corporate bond and medium-duration funds, favouring selective exposure to AA+ and higher-rated instruments.

It is also neutral on gilt and long-duration funds. PL Wealth believes that taking an aggressive long-duration position may be premature because of the possibility of RBI rate hikes in the second half of FY27. It suggests dynamic bond funds for investors seeking long-duration exposure, as these funds can actively adjust portfolio duration.

Why El Niño and crude oil could change the market outlook

Inflation is one of the biggest risks identified in the report.

India’s cumulative monsoon deficit stood at 13% as of August 26, 2026, with 16-17 meteorological subdivisions reporting deficient rainfall. Kharif sowing was 2% below normal, with rice and oilseeds among the crops most affected.

PL Research cited a 70% probability of a full-season drought according to Skymet, with a projected rainfall deficit of 15%. A strengthening El Niño could push up prices of agricultural commodities such as sugar, palm oil, coffee, cocoa and soybean.

Crude oil adds to the inflation concern. Brent crude averaged $90-93 per barrel in August 2026. According to the report, every $10-per-barrel increase in crude prices could add around 30 basis points to headline inflation.

The firm also warns that companies carrying 45-60 days of imported raw material inventory purchased at elevated prices could face margin pressure in the second and third quarters of FY27.

Against this backdrop, PL Research has flagged a 25-50 basis-point rate hike risk in the second half of FY27, depending on the movement in crude prices and monsoon conditions.

Gold and silver: What does the report expect?

PL Wealth expects gold to remain range-bound in the near term, with a projected range of $3,900-$4,400 per ounce. Central bank buying is expected to support prices, although changes in US monetary policy and geopolitical developments could increase volatility.

Silver was trading around $58-59 per ounce at the end of July. The report identifies demand from green technology industries and a physical market deficit as supportive factors. However, it says a sustained rally would require stronger inflows into silver exchange-traded funds.

What should investors take away?

PL Wealth’s September outlook favours a staggered approach to equity investments, with an emphasis on fund categories linked to banking, capital goods, infrastructure, defence and mid-sized companies. In debt, it prefers shorter-duration strategies and high-quality instruments that can generate interest income without taking excessive interest-rate risk.

Its long-term confidence in Indian equities remains intact, but the report identifies inflation, crude oil prices, monsoon conditions and global interest rate movements as risks that could influence markets in the coming months.