Data suggests that largecaps have been more stable, while volatility has been seen in the mid- and small-cap indices
The debate is on and there is no easy answer to the questions – ‘where should you place your bets?’ Should one invest in large, mid or smallcaps?
Going by the statistical data for 2018, S&P BSE Sensex outperformed the broader market. The S&P BSE Sensex rose 3 percent compared to 25 percent fall in the S&P BSE Small-cap index, and 16 percent downward move in the S&P BSE Mid-cap index. S&P BSE Largecap index also recorded flat-to-negative returns in 2018, so far.
Investment in any asset class should be determined by your risk profile. Data suggests that largecaps have been more stable, while volatility has been seen in the mid- and small-cap indices.
The broader market has been weighed down by a host of issues starting with SEBI reclassification of MF schemes, governance issues, fall in crude oil, mixed results from India Inc., and high valuations. But, is it the right time to buy into small or midcaps?
However, some stocks, especially from the small-cap space, outperformed and more than doubled investor wealth this year. The list includes Excel Industries, DIL, Responsive Industries, Merck, Generic Engineering & Construction and National Peroxide.
Many experts feel that large-cap stocks will offer a better value, and that is what has happened in 2018 also. However, some experts say that there is value in the broader market but the key is stock selection.
“We continue to like broader market over the largecaps. We also note that the market is witnessing a strong divide in valuations across quality and ordinary businesses notwithstanding market capitalisation which warrants that investors should be stock-specific now,” Pankaj Pandey, Head-Research, ICICIdirect.com told Moneycontrol.
“Emphasis should always be on buying a business which are run” in a capital efficient way and possess sustainable growth prospects,” he said.
Shibani Kurian, Sr. Vice President and Head of Equity Research, Kotak Mahindra Asset Management Company is of the view that large caps will still offer stability in a portfolio.
“However, after the sharp correction in midcaps, their valuations are now converging towards large caps and many of the excesses of the past have been erased. In this environment, with a 3-5 year view, certain midcaps, which have a strong growth outlook, sound management, strong capital allocation policies and have superior return ratios do provide an investment opportunity,” she said.
In the S&P BSE largecap index, as many as 21 stocks rose 10-20 percent in 2018, including Axis Bank, Marico, Infosys, Dabur India, Nestle India, Bajaj Finance, TCS and Tech Mahindra.
In the S&P BSE Mid-cap space, as many as 12 stocks rose 10-40 percent, including Havells India, JSW Steel, Berger Paints, Mphasis and Divi’s Laboratories.
Vinod Nair, Head of Research at Geojit Financial Services is of the view that largecaps provide a better chance of investment in the long term given a healthier risk-reward ratio. Whereas, mid and small caps have a higher risk of a downgrade in earnings and valuation in the future.
“The short term is looking positive whereas, in the medium term, the intrinsic value of equity as an investment asset is under evolution. In the very near term, this rally can get volatile but can get positive in the long term as downtrend in crude prices is maintained. India earnings downgrade is over and valuation has become bit more rationale,” he said.
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