With Nifty above 20k, time to move money from smallcap to large stocks, say fund managers

While the benchmark Nifty surpassed the 20,000-mark once again on November 29, it’s the smallcap and midcap stocks that have been the year’s star performers. However, a consensus seems to be emerging in the investment community that it’s time to move money from smallcap and midcap stocks to largecaps due to high vulnerability, valuations and moderate growth expectations.

“Investors should start looking at incremental allocation to largecap stocks,” said Ramesh Mantri, chief investment officer (CIO) at White Oak Capital AMC, advising reallocation of investment portfolios.

Also read: Midcap meltdown: Should investors look at largecaps now?

The BSE smallcap index has rallied 38 percent year-to-date, while the midcap index has gained 34 percent. Smallcaps and midcaps have seen more inflows than largecaps. Inflows in smallcap and midcap mutual funds since January were at Rs 33,479 crore and Rs 52,333 crore respectively. Inflows in largecap schemes were far lower at Rs 11,705 crore, according to Bloomberg data.

Now, after a sustained rally, experts say that it’s time for investors to re-diversify their portfolios to include largecaps.

Mahesh Patil, CIO of Aditya Birla Sun Life Mutual Fund, said risk reward in smallcaps and midcaps was now limited due to high vulnerability, as compared to largecaps. “When markets correct, the vulnerability in the midcaps and smallcaps could be larger because if the money has moved in, it can move out also,” Patil said.

Prashant Jain of 3P investment said in an interview to Moneycontrol that smallcap and midcap stocks performed exceptionally well in recent times, making it increasingly challenging to find reasonably valued stocks with realistic growth expectations. “(We are) now directing almost all our investments toward the largecaps,” said Jain.

Also read: Prashant Jain’s stock picks: Portfolio reveals old favourites still top the list

Earnings expectation slow down
Mantri said smallcaps were delivering the same earnings returns as largecap companies, whereas traditionally smallcaps earnings growth is higher than largecaps. “Largecaps and smallcaps delivered earnings growth of 12 percent in the July-September quarter, while midcaps delivered an earnings growth of 20 percent in the same period,” he said.

The Nifty reclaimed 20,000 on November 29 due to positive sentiments in the market. The Fed signalled a dovish stance, raising expectations of interest rate cuts next year. Moreover, the Foreign institutional investors (FIIs) bought Indian shares worth Rs 783.82 crore, while Domestic Institutional Investors (DIIs) purchased shares of Rs 1,324.98 crore on November 28, according to data available on the exchanges.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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