Radhika Gupta EXCLUSIVE: Politics, crude oil weigh on markets but quality mid-cap stocks will always perform

By: | Updated: July 19, 2018 4:22 PM

The broader markets continue to be in pain as investors are pulling away from small-caps and mid-caps, says Radhika Gupta, CEO, Edelweiss Asset Management Ltd.

Radhika Gupta, CEO, Edelweiss Asset Management Ltd.

Current year 2018 has seen muted performance in the benchmark indices, while mid-cap and small-cap stocks have bled. While Sensex and Nifty hit record highs very early on in the year, both the indices soon slipped and have so far managed only moderate gains of 2-4%. Albeit, entering into the second half of 2018, the benchmark indices resumed their upward trajectory, with the Sensex recently hitting a fresh record high and the Nifty reclaiming the 11,000-mark after five months.

However, the upward rally in the indices is not broad-based and is restricted to select blue-chip stocks. The broader markets continue to be in pain as investors are pulling away from small-caps and mid-caps, says Radhika Gupta, CEO, Edelweiss Asset Management Ltd. Investors must look to invest in quality mid-caps and small-caps over the long term for good returns, she says.

In an exclusive interview with Porisma P Gogoi of FE Online, Radhika Gupta points out to key triggers for the domestic markets for the rest of the year 2018.

What are your views on the performance of the benchmark indices in H1CY2018 and the reasons behind the same? How would you predict the performance to be in the remaining six months of CY 2018?

Even when the indices are hovering around all-time highs, foreign portfolio investors pulled out money due to higher oil prices and the possibility of a rate hike by the US Federal Reserve. Headwinds in the form of weak emerging markets, rising rates, higher crude oil prices, election year worries and relative rich valuations have mainly impacted sentiments in H12018.

Going into the second half, major triggers that will move indices in either direction encompass direction of crude oil, concerns over trade wars, upcoming general elections and most importantly, earnings revival.

If we talk about the recent rally in the Sensex, only three blue-chips — RIL, HDFC Bank and TCS — seem to be fueling the upward trajectory, while the mid-caps and small-cap stocks continue to underperform. What does this mean for the market?

Though the index has touched the lifetime high recently, the broader market continues to face pain as it is not a broad-based rally. There are still concerns over premium valuations that is influencing investors to stay away from small and mid-caps. The markets are expected to remain in a tight range albeit with higher volatility in 2018 given the busy political calendar ahead. The large caps are expected to outperform in near term.

Recently, it has been seen that investors are being advised to stay away from mid-caps and small-caps. What is your take on the same? What would be your advice to retail investors who are looking for good returns from mid-caps and small-caps?

Irrespective of the direction markets are moving, quality mid-caps and small-caps have always performed well over the long term. For investors looking for good returns from it, we recommend investing via SIP (Systematic Investment Plan) for longer term.

While the market recently hit new highs, how have mutual funds schemes performed?

We witnessed massive fall in mid-cap schemes whereas institutional and retail investors preferred quality blue-chips in H1 18. Headwinds in the form of weak emerging markets, rising rates, higher crude oil prices, election year worries and relative rich valuations have mainly impacted sentiments In H1 18.

What are the catalysts for the Indian stock markets going ahead? What would be the headwinds?

With markets amidst global headwinds and election cycle uncertainty, major indicators that will dictate the trend in near terms encompass mid-cap valuations, inflation expectations, global macro stability and most importantly, earnings revival.

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