Top fund manager expects volatility in mid cap stocks; says large caps are better valued

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Published: January 19, 2018 1:17:53 PM

Even as the beating in BSE MidCap index continued on Friday morning with stocks such as Jindal Steel & Power, Reliance Communications and Mphasis plunging by more than 2.5% each, top fund manager Mahesh Patil of Aditya Birla Sun Life Mutual Fund says that the space could remain volatile going forward.

Mahesh Patil of Aditya Birla Sun Life said, “Last year had very little volatility, but going forward there could be slightly higher volatile moves. The margin for error is less.? (Image: Reuters)

Even as the beating in BSE MidCap index continued on Friday morning with stocks such as Jindal Steel & Power, Reliance Communications and Mphasis plunging by more than 2.5% each, top fund manager Mahesh Patil of Aditya Birla Sun Life Mutual Fund says that the space could remain volatile going forward.  “Last year had very little volatility, but going forward there could be slightly higher volatile moves. The margin for error is less,” Mahesh Patil told CNBC TV18 in an interview.

Midcaps and smallcap stocks have had an excellent run at the bourses in the preceding year 2017. However, the S&P BSE index has undergone a correction of more than 3.7% in the last two weeks, and was trading at 17,566, plunging by more than 60 points this morning.

Track live stock prices: Jindal Steel & PowerReliance Communications and Mphasis

The BSE MidCap index had closed at a record high level of 18,247.55 on January 8. Notably, the BSE midcap index has rallied by more than 48% in calendar year 2017, In comparison, the Sensex has returned 28%.

Mahesh Patil said that largecaps could be in focus going forward on account of rising  flows by foreign institutional investors (FIIs). “There is room for more FII money to come in this year. So largecaps could do better as their relative valuations are better too,” Mahesh Patil told CNBC TV18. The top fund manager expects FII flows to double this year.

In view of a pick up in earnings in Q3, S Naren of ICICI Prudential MF said that largecaps will benefit more. “I believe when the earnings cycle improves, largecaps have a much bigger way to go. One of the reasons midcaps have done well is while local investors have been exuberant, foreign investors have hardly been exuberant in 2017. I still believe that largecaps will provide value to the investors,” S Naren of ICICI Prudential MF told CNBC TV18.

Interestingly, while the preceding year witnessed subdues FII flows, foreign investors have been supporting the ongoing rally by pumping sizeable funds into domestic markets. Foreign portfolio investors (FPIs) put in Rs 625.13 crore in stocks on net basis yesterday, while domestic institutional investors bought shares worth Rs 168.61 crore, provisional data showed.

In a recent interview with CNBC TV18, Andrew Holland of Avendus Capital said that midcap and smallcap would see a sharper decline in case of a stock market correction. On similar lines, cautioning investors about the volatility in the midcaps, Nilesh Shah of Kotak MF told CNBC-TV18 , “Midcaps will be highly volatile due to market movement or industry movement.” Sharing his market outlook for 2018 Nilesh Shah said, “ Not very single disrupting company will generate wealth. Disrupted versus disruptive is the theme for 2018.”

After top IT heavyweights Infosys and HCL reported Q3 earnings, Mahesh Patil says that the sector looks good, but one still needs to wait to see the growth trajectory. Further, there are hopes for the sector based on better US business conditions, corporate tax cuts there along with increased spends by companies in US based on these cuts.

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