Attractive opportunity in midcap private banks: Sathe

Midcap private sector banks present an attractive risk-reward opportunity, as current valuations appear compelling, and profitability is expected to see a sharp improvement over the next two years, says Amey Sathe, Fund Manager, Tata Asset Management.

He also sees consumer stocks as a dark horse in FY26. Edited excerpts from a chat:


Flexicap funds are being pitched as the perfect storm chasers designed to thrive amid volatility. How does the Tata Flexi Cap Fund stay nimble across market caps when the macro climate throws curveballs?


The Tata Flexi Cap Fund follows a well-structured investment approach, allocating two-thirds of its assets under management ( AUM) through a top-down sectoral view, while one-third is guided by bottom-up stock selection. Through the top-down lens, the fund employs sector rotation as a key strategy—overweighting sectors that are undervalued or underperforming, while underweighting those that are overvalued, significantly outperforming, or heavily owned. The objective is to invest in sectors at the bottom of their cycles and gradually reduce exposure as they reach their peaks. This disciplined approach has enabled the fund to effectively capture gains while mitigating drawdowns, ensuring a balanced and opportunistic investment strategy over various market cycles.

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Given the market’s current mood swings and macro uncertainties, where do you see the most compelling opportunities emerging - large caps with stability, mid-caps with momentum, or small caps with potential?


Our investment strategy prioritizes sector selection over market capitalization. Historically, we have observed a valuation disparity—mid and small-cap stocks tend to trade at premium valuations when their sectors are performing well, whereas large-cap peers remain comparatively undervalued, and vice versa. At present, valuations in the mid and small-cap segments appear elevated across most sectors, whereas large-cap valuations remain reasonable. However, within certain industries, we see attractive opportunities—particularly in mid-cap private sector banks and mid-cap cement companies, where valuations are relatively inexpensive compared to their large-cap counterparts. As a result, we maintain an overweight position in select names within these segments.

From a portfolio construction lens, how do you strike a balance between conviction and caution in today’s market? What’s your current asset allocation mix telling us?


We manage a well-diversified fund with a preference for maintaining broad exposure rather than running a concentrated portfolio. Portfolio risks are actively managed through strategic sector selection and a disciplined approach to valuation. We do not engage in tactical cash calls, maintaining an average cash allocation within the 1-4% range. Currently, large-cap stocks constitute more than two-thirds of the portfolio, reinforcing our focus on stability and valuation driven opportunities.

Indian equities have delivered strong gains post-Liberation Day, but with valuations no longer cheap, what’s your playbook for generating alpha going forward?


Given the current limited valuation comfort, sector rotation plays a pivotal role in generating alpha. This top-down investment approach serves as the cornerstone of Tata Flexi Cap Fund, enabling us to capitalize on market cycles and generate superior returns.

Retail investors often get spooked by volatility. What’s your advice to those trying to build wealth through mutual funds without losing sleep over market mood swings?


Market volatility is a natural part of investing, but it doesn’t have to be a source of stress. Retail investors need to invest with a long term perspective and stay disciplined with SIPs. They should avoid panic based decisions and also set realistic return expectations.

What are the guardrails or red flags you keep in mind while moving between market caps to ensure the fund doesn’t get caught on the wrong side of sentiment?


We rely on valuation-based guardrails as a fundamental approach to managing portfolio exposure. This framework provides a strong foundation for trimming positions when valuations become stretched, ensuring a disciplined investment strategy. Liquidity remains a key consideration, particularly in the current market environment, where the bull phase has largely played out. Maintaining exposure to stocks with adequate liquidity helps navigate changing market dynamics and supports portfolio flexibility in evolving conditions.

What’s the one underrated or under-the-radar trend you’re betting on in FY26 that could surprise the market?


We believe the consumer sector has the potential to emerge as a dark horse in FY26, making it one of our key overweight (OW) positions. Both staples and discretionary segments have faced headwinds—muted volume growth and margin pressure due to elevated raw material costs. However, we anticipate these challenges to ease in the coming quarters, with a sharp correction in raw material prices already visible from November 2024 levels. Despite this improving backdrop, valuations remain expensive for most consumer sector companies. Meanwhile, mid-cap private sector banks present an attractive risk-reward opportunity, as current valuations appear compelling, and profitability is expected to see a sharp improvement over the next two years.