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  1. Motilal Oswal EXCLUSIVE: Risk-reward ratio attractive in large-cap stocks; Siddharth Bothra picks top bets

Motilal Oswal EXCLUSIVE: Risk-reward ratio attractive in large-cap stocks; Siddharth Bothra picks top bets

Despite a good rally in the headline indices, the bigger worry that hovers in the domestic equity market is the lagging broader markets. However, Siddharth Bothra believes that the stark polarisation between large caps and small and mid caps may soon vanish.

By: | Updated: July 30, 2018 10:38 AM
Siddharth Bothra, Senior Vice President and Fund Manager, Motilal Oswal AMC.

Strong corporate performance has bolstered the recent rally in the Indian stock market, with a narrow range of outperforming large caps driving the Sensex and Nifty indices to record highs. The BSE Sensex conquered the 37,000 mark on June 26 for the first time ever, while the wider Nifty index of the National Stock Exchange traded firmly above 11,200 on June 27.

Despite a good rally in the headline indices, the bigger worry that hovers in the domestic equity market is the lagging broader markets, which corrected significantly over the past six months in 2018. The stark polarisation between large caps and small and mid caps may soon vanish, says Siddharth Bothra, Senior Vice President and Fund Manager, Motilal Oswal AMC.

Capital markets regulator SEBI’s reclassification of mutual fund schemes could be the key to recovery, Siddharth Bothra notes. He asserts that risk-reward ratio is attractive among large-cap stocks given the current market valuations.

In an exclusive interview with Porisma P Gogoi of FE Online, Siddharth Bothra discloses his top sectoral picks for retail investors. Here are the edited excerpts:

Sensex and Nifty are at record highs despite global markets not performing too well. How bullish are you on the returns this year as compared to 2017?

The strong corporate performance in 1QFY19, by majority of the companies which have reported till now, has been one of the key drivers for the Indian markets in near term. India also relatively stands insulated from recent global concerns with regard to tariff war and within EM’s (emerging markets) appear relatively more attractive.

The rally of Sensex seems to be fuelled by select blue-chips irrespective of the downturn in broader market indices. Is this some sort of a bubble?

The breadth of the recent rally has been narrow. Nonetheless, we don’t see any excesses in these stocks.

What strategy would you recommend for retail investors in the current scenario? Which sectors or stocks do you find value in?

Retail investors can look to use the SIP route to invest. The risk-reward seems more attractive for large caps currently. We find the BFSI (particularly private banks, insurance plays), consumption themes and IT sector relatively more attractive currently.

Do you think that the small-cap and mid-cap stocks have corrected enough? By when do you expect the broader markets to start performing in line with the headline indices?

The broader mid- and small-cap segment have witnessed significant correction in the last few months, which is not very surprising given the excesses that this segment had witnessed. We are of the view that the stark polarisation and contrast that we have witnessed between large caps and mid-caps in the last few years is unlikely to sustain post the recent SEBI MF reclassifications.

What would be your advice to amateur investors? Should they invest for immediate benefits or wait for long-term returns?

Investors should take a longer-term perspective while investing in equities. Markets in the near term seems head-winded, so one may adopt a strategy of investing in a staggered manner in order to average out the acquisition price.

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