'Time to cherry pick again': Porinju Veliyath says small and midcaps have bottomed & Thomas Cook is his latest buy

After two years of painful correction in small and midcap stocks, Porinju Veliyath, Founder and Portfolio Manager at Equity Intelligence India, believes the worst is behind us, and that patient stock-pickers willing to dig through the rubble will be rewarded. Speaking to ET Now, the veteran value investor said the segment has largely bottomed out and named Thomas Cook India as a recent fund addition, while flagging AI-leveraged midcap IT and pharma as the most compelling themes for the next five to ten years.

The two-year correction is over, but be selective

Veliyath was candid about the excesses that preceded the correction. The four years before the downturn saw stocks rise five, ten, and even thirty times, drawing in fresh SIP money and retail investors who got "carried away." That created an overbought, overvalued structure that needed to unwind, and it did. Many stocks have already bounced 20–50% from their lows in the past two months, with names like Sterlite and HFCL doubling.

But his message is not to chase the recovery broadly. The opportunity, he said, lies specifically in well-managed businesses whose earnings were temporarily suppressed — by input cost spikes, geopolitical disruptions like the Gulf conflict, or sector-wide sentiment — causing markets to punish them disproportionately. For those businesses, valuations have been cut by half on normalised earnings, even as the underlying quality remains intact.

"It is again time to cherry pick in the small and midcap segment. It is going to be rewarding — but it is not going to be an exciting market at the index level," says Veliyath.

His fresh buy and what it signals

Veliyath confirmed his fund has been deploying capital into the dip with zero cash on the sidelines. Thomas Cook India, down significantly from its highs, is one confirmed recent addition to the portfolio. He also disclosed a position in an unnamed smallcap hotel company that had fallen 50–60%, saying both fits the template of quality businesses punished beyond reason. His approach: no sector concentration, purely bottom-up, stock-by-stock conviction.

The two themes he is watching for the next decade

Theme 1: AI-leveraged midcap IT

Midcap software services firms that move fast to implement and deliver AI solutions, especially first movers, could see outsized gains as the AI boom plays out.

Theme 2: Healthcare and pharma

Many names have corrected well and the sector faces no structural slowdown, demand for healthcare will only rise. Selective picks here offer strong long-term visibility.

On defence, Veliyath acknowledged the sector's remarkable growth trajectory but urged caution on valuations: many smaller listed defence names are already priced for five years of growth. The theme is compelling; the entry point is harder to justify right now.