Be overweight on largecaps, equal-weight midcaps and underweight smallcaps, says Kotak’s Nilesh Shah

There are many counters where floating stock has gone into a few hands, says Shah.

Investors are advised to book profits on high valuations and then re-enter at reasonable valuations, said Nilesh Shah, MD, Kotak AMC. In a conversation with Moneycontrol about investor experience over the last year and what to expect going forward. There is a consensus that the market is on an up move in the long run, said Shah.

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As of October 2023, during the last 12 months, mid-cap and small-cap stocks have gained 24 percent and 31 percent, respectively, whereas large-caps have risen 6 percent.

Over the last five years, midcaps have outperformed large caps by 42 percent, while small caps have outperformed large caps by 25 percent.

Shah says that at present, large caps are at around the historical average valuation, while mid-caps are at a little premium over the historical average valuation and small caps are at about 20 percent premium over the historical average valuation. “So, my recommendation is that this is the time where you should be marginally overweight large caps; equal weight mid caps; and marginally underweight small caps,” he added.

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Nifty Small Cap Index is valued at 22.5x; Nifty Mid Cap Index is valued at 22.35x; and Nifty 100 is valued at 21.3x.

Also read: Small-cap stocks expensive compared to historical valuations: Kotak's Nilesh Shah warns investors

Nilesh Shah described current valuations as ‘crazy’. “There are many counters where the floating stock has gone into a few hands,” he said, adding, “My recommendation will be again to avoid all those stocks where floating stock is limited and valuations are high.”

He suggests that investors should book profits in these crazy valuations and come back at reasonable valuations.” This trend will play out over the next 12-18 months, he says.

While the earnings growth in small and mid-caps will outpace large caps, Shah says that the certainty of large-cap earnings growth is far higher.

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