Equity benchmarks Nifty 50 and Sensex are at their all-time high levels. Nifty 50 has jumped over 18 per cent this year so far. In the last two months alone, the index has gained about 9 per cent.
Experts point out that despite the prevailing sluggishness in the global economy, there are notable positive indicators within India’s macroeconomic landscape.
The growth outlook appears vibrant, inflation is well within the target band, and the bond market is exhibiting stability. Moreover, the outcome of recent state elections is signalling a mandate for a stable government after the General Elections 2024. This reinforces the likelihood of policy continuity and a favourable trajectory.
The critical decision now lies in determining where to place one’s bets—whether on large caps, mid caps, or small caps.
What should be your equity strategy?
The market sentiment is positive and experts believe the bull run will continue although intermittent profit booking cannot be ruled out.
Equity remains an attractive asset class but experts highlight multi-asset strategy could be the best strategy for investors.
Vinod Nair, Head of Research at Geojit Financial Services recommends a multi-asset approach for investments at this juncture considering the rich valuation of equities.
“Our strategy involves a multi-asset approach for investment. Given the high valuation of equities in a slowing global economy, offering a 5 per cent yield in line with bond yields, we see merit in diversifying. Debt instruments can provide a decent return with lower risk compared to risky equities,” said Nair.
Nair, however, is positive about India as its economic growth is constantly upgraded, resulting in a decoupling opportunity.
Nair favours large-cap stocks over mid and small-caps which are currently valued above average.
“We feel that large caps are better equipped for the long haul because of exuberant earnings growth, while recent stock performance has been relatively subdued due to muted FII inflows,” Nair said.
“Anticipating a narrowing performance gap between midcaps and large caps over the next one to two quarters due to aggressive valuations, we find large caps to be around the long-term average, indicating a more favourable risk-reward ratio on biggies. Moreover, larger companies are strategically positioned to navigate global economic challenges, particularly with forecasts indicating a slowdown in the US and Europe in the calendar year 2024,” said Nair.
Deepak Jasani, Head of Retail Research at HDFC Securities pointed out that some portion of the positive news on the macro front is already discounted in the current values. He said investors would do well to stick to their long-term asset allocation ratios and in case they are underinvested, then take the equity portion up to the planned level.
Within equities, Jasani emphasised review and rebalance can be undertaken from time to time.
“While small/midcap valuations have risen lately, there are select stocks in that category which may still be investment-worthy. More FPI money flows – as and when they happen – could first target the liquid large-caps/larger midcaps and some upside there cannot be ruled out,” said Jasani.
Nikunj Saraf, Vice President at Choice Wealth underscored large caps emerge as particularly attractive, with mid-caps and small caps entering potentially uncomfortable territories.
“A further consideration is the benchmark composition, revealing that the NSE 100 (large caps) has the least exposure to weak companies characterised by low growth and poor quality. In contrast, the NSE SmallCap 250 Index (small caps) exhibits the highest exposure to such weaker entities. Consequently, investors with shorter investment horizons and a conservative inclination may find it prudent to book full or partial profits in the small-cap space,” said Saraf.
Shrey Jain, Founder and CEO of SAS Online is of the view that investors should take cues about increasing exposure to equities from the divergence in their asset allocation. They should buy if they are underinvested.
Moreover, tactical allocation to stocks can be taken using large-cap stocks.
“Large-cap stocks are better priced and should be preferred over their small-mid cap counterparts. As we near general elections, expect market participants to cut their exposure to small-cap stocks and switch to large-cap stocks to contain the downside,” said Jain.
“Though the trend looks up, minor pull-backs cannot be ruled out and they should be used to add good quality stocks. Stocks with a focus on domestic consumption and pharma should do well. Traders need to trial stop loss,” Jain said.
Read all market-related news here
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!
Download The Mint News App to get Daily Market Updates.
Published: 19 Dec 2023, 02:13 PM IST