Jio BlackRock AMC’s Chief Investment Officer, Rishi Kohli, has turned “selectively bullish,” projecting that Indian equity markets are likely to trend higher until March. Key drivers for this optimism include improving earnings momentum, favorable seasonality, and easing macro uncertainties. Importantly, Kohli expects large-cap and mid-cap stocks to outperform small-caps during this period, after what he describes as an “extraordinary run” in the small-cap segment. He also highlights compelling sector themes — notably autos, consumption, and financials (BFSI) — while positioning his firm’s new arbitrage fund to benefit from rising volatility and improving sentiment.
Analysis of the Outlook
- Macro Regime and Earnings Momentum
Kohli argues that the earnings degrowth cycle is over, marking a transition into an early upswing phase for corporate profits. For several quarters after October 2024, earnings were weak, but he sees signs of a turnaround, especially in the most recent quarter.
This improving earnings backdrop, combined with seasonal tailwinds, is expected to drive markets higher through December and potentially into early 2026.
On the macro front, he emphasizes three key enablers:
Tariff clarity: Reductions in regulatory or trade-related uncertainties could boost business confidence.
Benign liquidity: Easing yields and better liquidity conditions make equity investing more attractive.
Stronger earnings from December–March: He anticipates that earnings momentum will strengthen during this window, bolstering overall market ascent.
- Large-cap and Mid-cap Preference Over Small-cap
A central plank of Kohli’s thesis is that large- and mid-caps will outperform small-caps in the coming 6–9 months. The reasoning:
Small-cap run-up: Small-cap stocks have experienced a strong rally in recent years. Kohli warns that historically, after such runs, “the next few years can be subdued.”
Relative stability and quality: Large-caps, and to some extent mid-caps, may offer more resilient earnings, balance sheet strength, and better risk-reward in the near term.
Rotation potential: As market conditions normalize, capital may rotate from smaller, higher-risk companies into more established ones (large and mid), especially if earnings recovery is broad-based.
- Key Sector Themes
Kohli highlights three major sectoral themes where he sees strong potential:
- Autos: He believes this will be a strong lever of consumption growth over the next year.
- BFSI (Banks, Financial Services, Insurance): Select banks, in particular, look attractive, supported by policy measures from the RBI and the government.
- Consumer (discretionary): While FMCG (fast-moving consumer goods) is viewed as “mixed,” autos stand out more positively.
These themes reflect a tilt toward cyclical and consumption-driven plays, rather than speculative small-cap bets.
- Arbitrage Strategy as Risk Management
Interestingly, Jio BlackRock is launching a new arbitrage fund (NFO: December 9–11), which Kohli describes as “tax-efficient, low-risk,” and behaving like fixed income despite being equity-structured.
He underlines three levers for arbitrage returns:
Market interest rate levels: Lower rates favor arbitrage.
Futures spreads: These are rising, driven by increased retail and HNI (high-net-worth individual) participation.
Volatility-led churn: Elevated volatility can create more arbitrage opportunities, benefiting from rapid buying and selling.
This strategy indicates a cautious element in his bullishness — using arbitrage to ride volatility without taking full directional equity risk.
Risks and Counterpoints
While Kohli’s bullish case is well-argued, there are several risks and challenges to his thesis:
- Valuation Risk: If markets rally strongly, mid- and large-cap valuations could become rich, especially given the recent run-up in many stocks.
- Policy and Macro Uncertainty: Tariff clarity is a key assumption. Any reversal or surprise could derange the earnings recovery.
- Small-cap Correction: His call assumes small-caps may underperform, but if small-cap valuations compress, there could be a sharper re-rating risk; investors who have deployed heavily there may face drawdowns.
- Liquidity Risk: While he bets on benign liquidity, any sudden liquidity tightening (domestic or global) could derail his scenario.
- Arbitrage Limitations: Though arbitrage is appealing, it’s not entirely risk-free. Extreme volatility, counterparty risk, or futures market dislocations could hurt returns.
Implications for Investors
Given Kohli’s outlook, here are some strategic takeaways for different types of investors:
Long-term investors: Might consider tilting portfolios more toward high-quality large- and mid-cap names, especially in his preferred sectors (autos, BFSI, consumer).
Risk-averse investors: The arbitrage fund could be an attractive option — offering a low-risk way to participate in improving market sentiment.
Active traders / tactical investors: Could look for opportunities in spread trades, especially around futures, to benefit from the arbitrage thesis.
Small-cap investors: They may need to be more selective; deploy with caution, or lock in profits if valuations seem stretched.
Conclusion
Rishi Kohli’s outlook from Jio BlackRock AMC is cautiously optimistic: markets are likely to continue rising through March, underpinned by improving earnings, favorable seasonal tailwinds, and easing macro risks. However, his key call is not for a broad-based small-cap rally — rather, he expects a rotation toward large- and mid-caps, which may deliver more sustainable risk-adjusted returns in the near term.
In parallel, his arbitrage fund launch suggests a hedge-like strategy to benefit from volatility without overleveraging directional risk. For investors, his stance implies a balanced play: lean into equity upside, but favor stronger companies and manage risk via arbitrage or selective exposure.