Select largecaps to outperform midcaps in 2018: IIFL's Sandeepa Arora

The year 2018 is unlikely to see a repeat performance of 2017 when benchmark indices rose by about 29 percent and mid & smallcap stocks outperformed by a wide margin, Sandeepa Arora, President, IIFL Institutional Equities said in an interview with CNBC-TV18.

“The trajectory looks a lot more volatile this year. Unlike 2017 which had a clear up run, that’s not going to be the case in the year 2018. Considering we are sitting in a pre-election year, things are likely to remain volatile amid challenging macro environment,” she said.

The key to wealth generation in the year 2018 is bottom-up stock picking. Investors should look at stocks which have strong fundamentals have visibility of strong earnings, should continue to do very well.

Commenting on the broader market, Sandeepa is of the view that environment is more challenging for the midcap space and valuations are not exactly in favour. “My sense is midcaps will consolidate and select largecaps to outperform midcaps this year,” she said.

Domestic institutional investors (DIIs) which supported the market on declines throughout the year 2017 could see some tapering off. If the market environment remains volatile this year we could see flows slowing down, said Sandeepa.

From the macro perspective, things are a lot more challenging but things are moving in the right direction on the micro side. We have seen earnings have stabilised in the December quarter and the downgrade cycle as of now has come to an end, she said.

Commenting on the sectors, IT or the technology sectors will be a clear outperformer this year from a fundamental perspective and in the sector, more midcaps are likely to remain in limelight than largecaps.

If the earnings momentum has started to pick up over there. The smaller companies are more nimble-footed and are able to do changes much faster than largecaps. They are able to take advantage of newer areas of responsibility amid depreciating rupee.