Mid-cap, small-cap stocks hold promise for next 3-5 years, says Kotak’s fund manager

By: | Published: August 31, 2018 3:42 PM

While the Sensex and Nifty have rallied to record high levels, and mid-cap and small-cap stocks have been among underperformers, Pankaj Tibrewal, fund manager at Kotak Mutual Fund says that the space holds a lot of potential in the next 3-4 years.

According to the expert, post robust Q1 results by India Inc, the broader market should do much better rather than the market being driven only by 10-12 Nifty stocks.

While the Sensex and Nifty have rallied to record high levels, and mid-cap and small-cap stocks have been among underperformers, Pankaj Tibrewal, fund manager at Kotak Mutual Fund says that the space holds a lot of potential in the next 3-4 years. In an interview to ET Now, Tibrewal explains that we are seeing a role reversal in the stock markets currently. Tibrewal noted that last year, it was the small cap and mid cap segment which had outperformed considerably.

“Last calendar year, you saw midcaps and smallcaps outperforming the broader market and 90% of the BSE 500 companies gave a positive return. But when you look at this calendar year, the mid and smallcaps have underperformed massively. The gap between the smallcap index and Nifty is about almost 20% plus and the gap between midcap and the Nifty is about 15-16%,” he noted, adding that it has been a role reversal of sorts.

According to the expert, post robust Q1 results by India Inc, the broader market should do much better rather than the market being driven only by 10-12 Nifty stocks. Interestingly while the 50-share index has rallied to record highs, just three stocks including  Reliance Industries, TCS and HUL have contributed to more than two-thirds of the gain in the NSE Index.

According Thomson Reuters eikon data, shares of IT bellwether TCS have contributed to more than 35% of the gains in the index so far. This is followed by Reliance Industries shares, which have contributed to about 27% of the Nifty’s gain. The third major performer has been the HUL shares, contributing to about 14% of the Nifty’s gain in the year so far.

According to Tibrewal, investors must must always adhere to a disciplined asset allocation policy. “Do not invest completely in either largecap or a multicap fund; do not be 100% in a mid and smallcap fund but have a disciplined asset allocation policy. We believe that for the next three to five years, the midcap and smallcap segments hold a lot of promise,” he said.

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