'Earnings momentum to continue for next 3-5 years'

Trideep Bhattacharya needs no introduction. Having worked extensively across developed and emerging equity markets for nearly 20 years, he is a seasoned hand at equity investing. After a five-year stint at Axis AMC, Bhattacharya joined Edelweiss Mutual Fund in 2021, where he currently oversees assets worth Rs 20,000 crore across 10 equity schemes. In this interview, Bhattacharya delves into the factors driving his funds' performance, his views on the markets and economy, the sectors and themes he finds lucrative and the 'FAIR' investment framework followed at Edelweiss AMC. Valuations for the equity markets appear rich, with minimal scope for P/E expansion across the board. How do you view the relative valuation across large-, mid- and small-cap companies? Also, how sustainable is the earnings growth priced in by the market? If you sub-aggregate the overall market valuations into two categories - large cap and a combined group of mid-cap and small-cap companies - you'll find that large-cap valuations are roughly on par with or up to 5 per cent below their 10-year average, indicating that valuations for large-cap stocks are reasonable. In contrast, mid-cap and small-cap valuations are about 20 to 40 per cent higher than their 10-year average, making them relatively expensive. However, that's only part of the picture. From an earnings growth perspective, mid-cap and small-cap companies are experiencing growth rates twice that of large-cap companies. When you consider both valuations and earnings growth together, you get a comprehensive understanding of the current market. While there is some excess in mid-cap and small-cap stocks, including them in a portfolio is essential for boosting overall earnings growth. Hence, we recommend a multi-cap portfolio, which contains a good proportion of stocks across all the three market-capitalisation categories. This approach allows the fund manager to select the optimal mix of valuations and earnings growth across different market