'Not bearish on IT; confident it will regain footing'

Summary: WhiteOak Capital's Ramesh Mantri believes today's market is less about headlines and more about fundamentals. In this conversation, he shares why small and mid caps still hold alpha potential, how WhiteOak's process thrives on both flat and turning pitches and why sector calls like IT aren't macro bets but bottom-up outcomes. With SIP-focused design, low-beta strategy and research depth, Mantri outlines how WhiteOak balances discipline with dynamism, offering insight into where opportunity lies in an uncertain world.

Markets have weathered a fair share of headwinds lately, from tariffs and sticky inflation to global uncertainties. Yet, they continue to show surprising strength. For Ramesh Mantri, CIO at WhiteOak Capital Mutual Fund, such resilience is less about short-term events. What really matters, he says, is long-term corporate cash flow growth, which is the bedrock of equity returns.

With Rs 24,000 crore under his watch and WhiteOak’s flexi-cap fund carrying a four-star Value Research rating, Mantri brings both perspective and discipline. In this interview, he explains why today’s environment plays to the strengths of active managers, how WhiteOak’s process adapts to both flat and turning pitches and where opportunities lie in small and mid caps.

Indian markets have held up well despite tariffs, inflation worries and global uncertainty. Do you see that resilience lasting, or are investors underestimating some risks?

It's always nearly impossible to predict what markets will do in six to 12 months. Invariably, short-term market movements are defined by events that you can't predict. Expected events don't move markets in the near term. In the long term, the only thing that matters is long-term corporate cash flow growth, which is closely tied to the economy's performance. Fundamentally, in the very long term, that's what matters.

It's very difficult to predict in the near term. I think that, considering the slowdown in India, the geopolitical situation, and the 50 per cent tariff, Indian markets have held up quite well.

Mid- and small-cap stocks are still priced well above those of large caps, even after bouts of correction. Do you think that gap is justified given the earnings outlook?

Clearly, when we look at long-term valuations, even today, small and mid-cap valuations are at least 20 per cent premium to large caps. Normally, environments of uncertainty, volatility and slowdown tend to impact smaller companies more adversely than larger ones. As you can see, in the last 12 months, large caps have outperformed small and mid caps; that’s exactly what’s playing out. Of course, the performance gap is not very stark.

One of the key reasons is that we continue to see very strong flows into small and mid-cap funds, much of which is linked to systematic investment plans (SIPs), which, by definition, are more resilient.

WhiteOak funds are consistently in the top quartile across categories. Beyond disciplined stock picking, what has helped sustain performance?

We started mutual funds three years ago. I’d say the first 21 months, until June 2024, were like a flat pitch in cricket terms—a very good environment for risk-taking. And as in cricket, if the pitch is flat, the right strategy is to be aggressive, step out and hit the ball for a six.

However, over the last 15 months, since the June 2024 elections, the pitch has begun to shift. The skill required to play on a turning pitch is very different from what you need on a flat pitch. I’m not saying the pitch is dangerous, but the risk–reward balance has become more important.

In those first 21 months, the more risk you took, the better your fund performed. Small caps outperformed mid caps, mid caps outperformed large caps, cyclical sectors did well, and micro caps outperformed small caps. Now, the environment is mixed; some areas are doing very well, while others are not. This is the ideal environment for an active stock-picker to add value. Balanced risk-taking works now. For a bottom-up fund manager with deep research, this is exactly the kind of environment where our process proves itself.

So, while our flexi-cap fund, which just completed three years, outperformed strongly in the first 21 months, the last volatile phase has shown that our process is robust even when the cycle turns.

Your flexi-cap and large-cap funds did well last year but are now in the third quartile in 2025. Is this more due to weak markets or stock-specific calls?

It has little to do with individual stock picking. By definition, our flexi-cap fund is overweight in small- and mid-cap stocks. And in this calendar year, small and mid caps have underperformed large caps. As I said, while we maintain balance, it’s not zero exposure. So we are slightly impacted by that factor. But I would not focus too much on year-to-date numbers. That’s far too short a period for a fund manager to judge performance.

We like the way your mid-cap fund has shaped up, especially considering how it has navigated both the ups and downs of the market in such a short span of time. Could you take us through how you construct and manage a portfolio that currently runs into more than 100 stocks?

First of all, as you are aware, the mid-cap universe is 150 stocks, and you must have a minimum 65 per cent exposure from that basket. We typically target about 70 per cent from the mid-cap basket. The way we manage the mid-cap fund is that we typically avoid buying large-cap stocks in this portfolio. In fact, the large caps you see in our mid-cap portfolio were mid caps not long ago. These are mid caps that have graduated into large caps. Every six months, some mid caps become large caps, and some large caps slip into mid caps, so that portion keeps shifting.

We also have significant exposure to small caps that we expect will graduate into mid caps over time. Our portfolio is structured as a combination of mid-cap and small-cap stocks. That’s our approach, today’s mid caps and tomorrow’s mid caps (today’s small caps). We also remain diversified across sectors. You won’t see very large sector bets. Currently, we are overweight in Financials and IT, as these sectors offer more opportunities in the mid-cap basket. Conversely, we are underweight in Consumer, where we are currently finding fewer opportunities.

It’s entirely bottom-up. We’ve also designed this as a low-beta fund. During strong rallies, a low-beta fund trails the market because it doesn’t capture the full momentum, but that’s intentional. Mid caps are inherently volatile, and by running a low-beta strategy, we reduce volatility for our investors while still delivering strong, consistent performance.

The second design element is equally important. From the outset, this has been a SIP-only fund. As a result, we experience very regular flows, almost every day. Even if there are small redemptions, SIP inflows offset them. Investors here are largely SIP investors with a long-term orientation, so we can plan deployments with certainty based on the monthly inflow of funds. This product structure is a win–win for both investors and the investment team.

Your multi-cap and flexi-cap schemes remain overweight in small caps relative to the category. Is this driven by valuation opportunities, earnings visibility, or simply a bottom-up outcome?

It has nothing to do with our views on small caps as an aggregate. It’s simply because, as a team, we believe we can generate much better alpha in small caps versus large caps over the long term. If you believe you can create more alpha there, then it makes sense to be overweight. This is not a one-year call—it’s a structural belief.

Additionally, the small-cap universe is vast, and as I mentioned, we have one of the most comprehensive research coverages in the market. That enables us to identify and invest in a large number of small-cap opportunities.

Despite weak IT performance over the past 18 months, several funds of WhiteOak have remained overweight. What gives you confidence in this positioning?

First, let me clarify that our philosophy is not to take top-down sector calls. If you go to zero weight in IT, that means you’ve taken a very bearish macro call on the global or US economy, or on technology trends like AI. That’s not what we do. We maintain very tight sector balances versus the benchmark.

Second, if you study our portfolios carefully, you’ll see that while mega caps dominate the IT sector, we tend to hold a lot of small- and mid-cap IT names. That portion has outperformed large-cap IT. In fact, over the last three years, our IT positioning has created some of the highest alpha for us versus the benchmark.

Often, the best time to create alpha is when a sector is out of favour, because fewer people are paying attention. I’m not bearish on Indian IT. The industry has survived multiple cycles. When cloud adoption and digital transformation came in, many wrote obituaries for Indian IT, yet it bounced back. I believe India will adapt again. Already, India has the world’s largest pool of AI professionals. There will be some pain, but I’m optimistic the sector will find its footing.

Are there any particular sectors you are bullish on, specifically within the mid- and small-cap segments?

We are not top-down investors; we are bottom-up. But within the small- and mid-cap space, there are several areas where we are finding good growth along with attractive valuations. In financials, for instance, the affordable housing segment looks very promising. Within capital markets, the long-term growth story in asset management, wealth management and related businesses is equally compelling.

Pharma and healthcare continue to present opportunities, both in domestic formulations and among CDMO (contract development and manufacturing organisation) players, as well as in healthcare-focused small-cap names. On the consumer side, we are positive about the travel and hospitality segment, as well as some of the new-age businesses that have now achieved sustainable profitability, unlike the loss-making companies of the past.

We see potential even in real estate, particularly in newer formats such as flexible and co-working spaces, which, although still small, are gaining traction. And finally, in manufacturing, we prefer precision-oriented businesses rather than mass manufacturing, companies in high-end auto components, industrial equipment, aerospace and defence, where India can combine engineering skills with cost advantages.

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