Quest Investment Managers' Rakesh Vyas Views Market Volatility as Buying Opportunity, Bets on Smallcaps and Consumption

Markets have been volatile, but Rakesh Vyas, CIO and Portfolio Manager at Quest Investment Managers, has been using the turbulence as a buying opportunity — selectively. In an interview with ET Now, Vyas laid out a detailed playbook covering financials, consumption, IT, metals, infrastructure, and asset allocation for investors navigating an uncertain macro environment.

Smallcaps back on the radar after a long correction

Over the past three months, Quest has been getting more constructive on smallcap stocks. After four to six quarters of steep corrections, valuations in this space have become palatable enough to warrant meaningful position-building. Vyas sees smallcaps as direct beneficiaries of the government's and RBI's push to drive consumption growth through tax relief, liquidity support, and interest rate cuts.

Why smallcap banks over largecap banks

Within financials — which account for 20–25% of Quest's portfolio as lenders, plus another 5–7% in capital market plays — Vyas has recently shifted preference away from largecap banks toward smallcap and small private sector banks. The reason is straightforward: growth rates at smaller lenders are running meaningfully higher than system-level credit growth or what large banks are delivering. On asset quality concerns linked to the West Asia conflict, Vyas is watchful but not alarmed. Channel checks suggest that small companies in the vendor ecosystem are being cushioned by support from larger corporate clients. Working capital needs are rising incrementally, but business fundamentals have not deteriorated yet. He does flag one historical pattern worth noting: in periods of macro volatility, unorganised players tend to lose ground to organised ones — a dynamic he expects to play out over the next six to nine months.

Consumption is the biggest bet

Consumer discretionary makes up 25–30% of Quest's portfolio — its single largest allocation. The thesis is built on a clear policy tailwind: income tax cuts, GST reductions, RBI rate cuts, and improved liquidity are all pointing toward a consumption recovery. Within this theme, Vyas is positive on apparel retailers, food delivery and quick commerce platforms, hotel companies, and the auto and auto ancillary space, which continues to benefit from the GST rate cut.

IT: Underweight, with a selective twist

Quest has been underweight on IT services for a while and remains cautious. While the sharp derating in both largecap and midcap IT has made valuations look attractive, Vyas argues that valuations alone won't drive a re-rating without meaningful growth recovery — and recent management commentary from largecap IT companies reflects exactly that struggle, particularly in constant currency terms. His preferred IT exposure is through product companies like Oracle Financial Services and select midcap IT services names where growth remains strong. The bet: midcap IT's growth tailwind will eventually justify its premium over largecap peers.

Power stays a long-term conviction

Power, including transmission and distribution, remains a high-conviction theme at Quest. The earnings trajectory is strong and Vyas expects sustained growth for the next three to five years. The only caveat is valuation, which is no longer cheap. He continues to play the theme through OEMs and the broader support ecosystem.

Metals and infrastructure: Proceed with caution

On metals, Vyas is cautious. Non-ferrous metals are heavily influenced by geopolitics and energy prices — variables too difficult to model confidently. Steel has near-term protection from safeguard duties but stock prices have already run up. Exposure remains limited. On infrastructure, domestic road and rail capex is unlikely to return to the FY19–FY24 pace, partly because rising crude prices are squeezing the government's fiscal capacity. The more interesting infrastructure play, Vyas believes, is companies with exposure to Middle East and West Asia projects — particularly those with 10% or more of their order books from that region — as and when the geopolitical situation normalises.

The big picture on asset allocation

Vyas believes interest rates have likely bottomed out, reducing the appeal of bond plays. Commodities remain geopolitics-dependent. Equities still look reasonable, though FY27 earnings growth estimates have been trimmed by a couple of percentage points from the initial 12–14% forecast. If earnings recover to double-digit growth, market returns should follow.