We continue to find a lot of opportunities in the small and midcap space especially at these prices, said Ashwini Agarwal, co-founder and partner at Ashmore Investment Management India, from the side-lines of the Sohn India Conference 2018.

Speaking exclusively to CNBC-TV18's Nimesh Shah, Agarwal said valuations are reasonable in the two-wheeler space.

He said, "We think that the industrial space will continue to deliver because the amount of capex that has taken place at the end of the government."

Edited Excerpts:

What is your sense of the earnings gone by and where does India stand right now?

If you are referring to the cover story that ran in today’s newspapers, where aggregate earnings in the March quarter appeared to be a little disappointing compared to what the expectations were, I have the following sense. I think if you look at the large companies, by and large they have delivered what they are expected to deliver. Probably, a lot of the disappointment is in the smaller companies. We continue to expect an industrial revival even though the Purchasing Managers' Index (PMI) reading for April was a little bit on the softer side. So, we are hoping that this is a blip and we will continue to move ahead with all the capex that is taking place at the end of the government.

I think on the financials, the earnings growth story is intact because if the National Company Law Tribunal (NCLT) process stays on track, the financials will be able to report the kind of earnings growth that the street is forecasting. So at this point in time, I am little concerned on earnings? Maybe yes. But would I be willing to downgrade estimates right now? The answer is no.

You spoke about bit of misses in the midcaps and smallcaps and that is where you have seen the maximum pain since the beginning of the year. Many of the stocks are down 30-50%. Is this the mean revision so to speak because they have rallied so hard or you think there is a genuine concern now for the midcap and smallcap space?

I think it's a little bit of both. Little bit of mean revision taking place and a little bit of serious concern on the quality of the companies, especially with the auditor resignations happening, I think people are seriously looking at cash flows and looking at the quality of the financials for various companies, which is always a good thing to do. So, if the market becomes a little more sane, that is fine but I don’t see this to be a very lasting concern. I don’t think smallcaps were so expensive across the board that one needs to worry about the asset category per se. I think some stocks were expensive and it's good that they are correcting, but we continue to find a lot of opportunities in the small and midcap space especially at these prices.

As a money manager, are you finding enough opportunities in the midcaps and smallcaps?

For the first time in the last six months, today I have more ideas, which I am eagerly looking forward to add to the portfolio at an appropriate time. November-December was difficult to find new ideas, but now you are finding good ideas.

From an earnings point of view, what came out very prominent was the continuation of good numbers in the automobile space and the consumer names but again valuation is a bit of a challenge in those sectors, how are you taking up, how are you positioned in those two spaces, the autos and the fast-moving consumer goods (FMCG)?

The autos we like, because valuations are expensive in a couple of cases and there are places where valuations are reasonable in the two-wheeler space for example. On the consumer side, we are a little more cautious, because we are value investors by definition. So on the consumer space, the valuations are too stressed for our liking, but in the industrial space, while the margins were a little soft in this quarter, we continue to reasonably positive.

We think that the industrial space will continue to deliver because the amount of capex that has taken place at the end of the government, I think balance sheets are getting repaired. If you look at L&T, look at the order book, look at how they have done and what kind of guidance they have given, I think there is a lot of confidence in some areas.

Since the beginning of the year, lot of commentary from the experts was, India this year, is a market where the macros are challenging but the micros are improving but that seems to be little fading away because the numbers not coming up as to what the street was expecting. In that scenario, do we see more further downside from the Indian markets for FY18?

I don’t think so. I think, if you look at the micro numbers, I have to analyse some of the smaller results in great detail, but at least for the companies in our portfolio, where we track the earnings very closely, we didn’t have a season, which was full of disappointment. So we had a season which was in line with expectations.

So, when I read the news report this morning, even I was surprised at the aggregate numbers, I didn’t see that many disappointments in our portfolio companies. So I am not quite sure where that number is coming from. Aggregate demand data seems to be okay, PMI is still in an expansionary phase not in a contraction, bank loans are growing. So I don’t know where the disappointment has come from. It doesn’t seem right to me.