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Let large-caps be your fire crackers this Diwali

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Pan India, agriculture sector, farmers “We are going to enter a phase of very healthy earnings,” says Prashant Jain of HDFC Mutual Fund. (Image:Reuters)

Amid the festive season, and when all eyes on the quarterly earnings, Prashant Jain of HDFC Mutual Fund says that the large-caps have a lot of potential to create value for investors. At a time when, many experts are cautioning about the markets being overvalued, as earnings have not really picked up, CIO of HDFC Mutual Fund says that we may see a turnaround. “The profitability in many sectors is passing through a very challenging phase. In next two years we should see the concerns getting addressed, that earnings are not growing. I think we are going to enter a phase of very healthy earnings,” Prashant Jain said in an interview to ET Now.

Explaining that the markets have actually not peaked and there’s a lot of steam left, he said, “In the last 10 years, Nifty CAGR is only 6%. The nominal GDP CAGR is 12-15%. This means our Market cap to GDP has fallen to very low levels. If index trails the GDP by more than 8% in a country like India, you can imagine what kind of value is there.” According to him, large-caps is the way forward. “There is a lot of opportunity in large-caps,” he told the channel.

Of late, many top market experts have been advising investors to go for large-caps, as mid-caps appear to be overheated. Gautam Shah, Chief Technical Analyst at JM Financial told ET Now in September, “We see correction in the trading favorites, but don’t see a hammering in the large cap space.” In the same conversation, he pointed out, “The midcaps can lose as much as 10 per cent to 12 per cent in a very short span of time. If the index were to lose 10 per cent, you would have stocks losing anywhere between 10 per cent and 30 per cent. If that happens, it is going to be extremely damaging.”

The S&P BSE Midcap has returned 31% since January, while the BSE Sensex has returned 19.5% in the same period. Comparing the action in the two spaces, Vetri Subramaniam of UTI AMC said in September this year, “Either the large-caps are starting to do significantly better or the midcaps are taking a pause and pulling back to where the large-caps are. But the two relevant things to keep in mind are that, yes the outperformance of mid-caps over large-caps has been very significant going back almost last four years, pretty much may to August of 2013 when we were going through a little bit of a mini crisis.”

Even though historically midcaps have done well, they are now overheated, feels Vetri Subramaniam. In the same interview to ET Now he said, “If I were an investor making allocations and just looking at where valuations are, I would have to believe that the better opportunity today lies in large caps as compared to midcaps.”


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