Indian markets started the year on a strong note but weak global and domestic cues post-February dented investor sentiment, which led to a huge selloff in the small and midcap space.
However, valuations appear more reasonable now and many stocks are providing opportunities for investors to buy into the midcap space, S Krishna Kumar, CIO-Equity at Sundaram Mutual Fund, said in an interview with CNBC-TV18.
Kumar said that valuations have now become much more reasonable when compared to the levels they were at in November and December.
While valuations have corrected with price, economic fundamentals have become better and corporate earnings have been rising, led by various small and midcaps, which have been doing consistently well for the past year, he said.
“We are seeing sharp rebound in earnings growth and most of the stocks are back to decent valuation and provide good entry opportunity with a medium-term perspective in mind,” Kumar explained.
In terms of sectors, hospitality, domestic staffing services, cement, and infrastructure, among others, are looking better. In terms of financials, which were weighed down by a rise in bond yields, companies in these sectors should do well in the near future, particularly wholesale funded entities.
Kumar said that Sundaram has moved Bajaj Finance and Bajaj Finserv out of its portfolio since both those stocks have transitioned into the largecap space.
However, he pointed out that SEBI guidelines say 65 percent of the portfolio has to be invested in midcaps, while the rest can be outside of that. Most of the midcap funds have the flexibility to hold both midcaps and largecaps.
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