18% Nifty earnings growth beats estimate; Motilal holds 50% mid-small bet

The clouds hanging over Indian equities may be beginning to clear, but Motilal Oswal Private Wealth (MOPW) is not turning outright bullish on the market. Instead, the wealth manager is sticking with its 50% allocation to mid- and small-cap equities, arguing that the risk-reward in the broader market has improved as foreign selling eases, earnings hold up and currency pressures moderate.

In its August 2026 Alpha Strategist report, titled “Clearing Skies”, MOPW has retained its overall neutral stance on Indian equities but maintained a portfolio allocation of 40% to hybrid/large-cap strategies, 50% to mid- and small-caps and 10% to global equities.The firm had raised its allocation to mid- and small-caps to 50% in July, citing attractive valuations and exposure to sectors benefiting from domestic growth.

Investment Strategy:

Lump-sum investments in Hybrid funds at current levels;

For Pure equity-oriented strategies, a staggered approach over the is prudent given the uncertainty. Any sharp correction should be used for aggressive deployment.

Four headwinds begin to ease

According to MOPW, several factors that had weighed on Indian equities over the past year are now becoming less restrictive — foreign institutional investor (FII) selling, pressure on the rupee, capital moving towards the AI-led US and North Asian rally, and muted earnings momentum.

The most immediate change has been in foreign flows.

After four consecutive months of selling, FIIs turned net buyers in July, bringing in about $2.5 billion into Indian equities. At the same time, the Nifty 50 gained 2.2% in July, marking its second consecutive monthly gain and closing at 24,384 — its first close above the 24,000 mark in five months.

The recovery, however, has not completely erased the year’s losses. The Nifty remained 6.7% lower for calendar 2026 at the end of July, according to the report.

Why India may be better placed if the AI trade reverses

One of the more interesting arguments in the report comes from South Korea.

As per Motilal, KOSPI’s roughly 40% correction from its June peak after a leverage-driven rally in AI-linked stocks unwound. For MOPW, the episode is a reminder of the risks created when market gains become concentrated in a narrow set of sectors and momentum trades.

India, it argues, is relatively less exposed to such a reversal because a large portion of corporate revenues and market capitalisation is linked to domestic activity.

Around 78% of MSCI India’s revenues are domestically generated, while 66% of Nifty 500 market capitalisation comes from domestic-facing sectors, according to the report.

That gives Indian equities a different growth profile from markets that have become heavily dependent on the global AI investment cycle.

The firm’s investment thesis is therefore increasingly centred on domestic consumption, investment, financial deepening and manufacturing, rather than on a single global technology theme.

“The recent correction in Korea highlights the risks that can emerge when market performance becomes concentrated around a narrow set of global sectors and leveraged positions. The defining feature of India’s equity market today is the breadth of its growth drivers. Domestic consumption, investment, financial deepening, and manufacturing push are emerging as multiple engines of growth, making the market less dependent on any global cycle. This breadth gives us greater confidence in the underlying opportunity, particularly across mid and small caps, where higher earnings growth , and a stronger domestic backdrop are supporting the investment case, while staying disciplined on accrual in fixed income and gold as our core precious metals holding,” said Sandipan Roy, Chief Investment Officer, Motilal Oswal Private Wealth.