Both the midcap and smallcap segments are overvalued at the moment, which calls for a cautious approach from investors, according to Anirudh Garg, who is the founder, partner and fund manager at Invasset PMS.
Conversely, backed by his over 15 years of experience in the stock market, Garg sees a more appealing risk-reward balance in the largecap space.
While he remains optimistic about the broader market's prospects over the next two to three years, he believes that a timely and adequate price correction is essential to realign market valuations.
Garg's views came up in an interview to Moneycontrol. The interaction covered a host of other aspects as well. Here are the excerpts from the interaction:
Do you think the market will remain strong even in FY25, given the expectations of strong earnings growth, robust economic growth, and supportive government policies?
Given the anticipated strong earnings growth, economic expansion, and favourable government policies, our outlook for FY25 anticipates considerable market volatility, including the potential for significant corrections. In our analysis, both midcap and small-cap segments appear overvalued, suggesting a cautious approach towards these segments.
Conversely, we see a more appealing risk-reward balance within the large-cap space, which informs our strategy of steering clear of mid and small-caps for the time being. While we remain optimistic about the broader market's prospects over the next two to three years, we believe that a timely and adequate price correction is essential to realign the market valuations.
Do you expect any game-changer decision from the government (after the general elections) as there are high chances of policy continuation?
As India prepares for the general elections, the stock market closely monitors the government policies, reflecting investor sentiment. Election periods historically witness heightened market volatility, with investors watching for policy announcements affecting economic fundamentals. Recent initiatives, like increasing public infrastructure spending to 10 percent of GDP by 2024 and growing digital transactions, emphasise economic modernisation and growth.
Investors prioritise policy continuity and reforms for economic stability and growth. Certainty in policies, and adapting to new challenges is crucial. Pre-and post-election government decisions undergo scrutiny for their impact on economic fundamentals and business ease.
Also read: GDP data strong but buoyant market may have already discounted growth
While short-term policy changes prompt immediate market reactions, consistent reform execution and policy stability shape long-term market trajectories, boosting investor confidence.
Do you think the government will keep increasing its focus on capital expenditure on infrastructure space every year?
Navigating the evolving market landscape, the expectation of continuous government support for capital expenditure remains crucial. We hold a positive outlook on the market's ability to sustain capital expenditure, acknowledging its significant role in driving economic growth. Public capital expenditure has proven fruitful, supporting key sectors and delivering returns for investors.
We anticipate a gradual pivot towards private capital expenditure, signalling a thematic change in the market. This shift highlights evolving investment prospects, suggesting sectors benefiting from private capex could drive future growth.
For investors weighing positions in government capex-dependent stocks, this shift necessitates a nuanced approach. It's not just about holding stocks but continually reassessing and rebalancing portfolios to align with emerging themes. While government capex has propelled growth, the narrative around private capex unveils new investment avenues.
With the elections coming closer, which themes are you focusing on?
We have proactively identified opportunities in sectors like railways, defence, and PSUs, believing that markets anticipate future expectations in current valuations. This philosophy guides our decisions, allowing us to act on trends ahead of the curve.
What is your take on the overall new-age stocks that started reporting better numbers than earlier?
The evolving landscape of new-age stocks shows improved financial metrics, hinting at a shift in growth trajectory. However, caution is warranted. These firms have flourished in favourable market conditions but lack tested resilience in challenging times. Our portfolio strategy emphasises long-term risk management over immediate gains. While recognising their promising performance, we advocate for patience to gauge their ability to weather diverse market scenarios.
Also read: New semiconductor projects will drive up electronics manufacturing 3X to $300 bn: Ashwini Vaishnaw
Lastly, do you think the worst is over for Paytm?
Paytm, a major player in India's digital payment sector, faces challenges like governance issues and regulatory concerns, prompting discussions on its future. Vijay Shekhar Sharma stepping down as chairman of Paytm Payments Bank intensifies the speculation. While not offering investment advice, these developments signify a critical juncture for Paytm. Its trajectory depends on internal restructuring and external market dynamics.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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