Siddharth Bothra, who is Fund Manager of Ambit Coffee Can Portfolio at Ambit Asset Management, doesn’t see expect the mid and smallcap meltdown to stem in a hurry.
"Valuations for small caps are around 10 percent higher, we don't see a case for mid and small-caps outperforming in the near to medium term," says in an interview to Moneycontrol.
AMFI advisory to its members to moderate inflows into small and midcap schemes and the regulatory crackdown on NBFCs have hit the sentiment with the broader market seeing one of its worst performance in recent months.
Bothra, who has more than 25 years of experience in investment and equity research, told Moneycontrol in an interview that select businesses that benefits from rural market recovery and some pockets of BFSI will likely do well in FY25. Edited excerpts:
Do you think the smallcaps are losing steam?
Since FY21, the market has been broad based, driven by both strong earnings growth and liquidity. The performance variance between largecap NSE 50 and NSE midcap and smallcap indices over FY21-February 2024 has been around 15 percent and 25 percent, respectively. Given the earnings growth variance going forward is <3 percent, while valuations for smallcaps are around 10 percent higher, we don't see a case for mid and smallcaps outperforming in the near-to-medium term.
If one were to go by behavioural aspects, there are signs suggesting that volatility in smallcaps could increase.
Which are your top bets for the next financial year and why?
The two key areas we have a positive bias going into FY25 are: 1) select plays which benefits from bottom of the market and rural market recovery and 2) some pockets of BFSI. The economic recovery over the last few years has been 'K' shaped, with inflation easing and growth percolating down, we expect the mass segment to benefit from the same.
In the BFSI segment, we feel the valuations for many select plays are at decadal lows and pessimism is overdone.
Do you expect more REITs and InvITs to tap capital markets (via IPOs) for fund raising? Are they a good investment opportunity?
Given the robust primary markets and the abundant liquidity, we feel this is likely. Investors who are looking for assured returns kind of investment, may find this segment more attractive than the current alternatives.
Do you think PSU banks are overvalued or is it the right time to add more of these stocks?
PSU, as such, is a very broad term, which includes all kind of industries such as commodities, asset plays and service plays. We have a mixed view on PSUs. While we find pockets of opportunities in few segments, we also see some pockets were there seem to be excesses.
Our rule of thumb for investing in PSUs is to look for sectors where being a government company can be an advantage and avoid companies or sectors where the service quotient is high or where private sector, given their faster decision-making and risk-taking ability, have a huge advantage over PSUs.
Do you expect more Tata Group companies to come out with IPOs plans in the coming years?
The Tata group has always encouraged their group companies to get listed as it increases transparency and governance standards, while also unlocking value. To that effect, as and when more group companies move into a phase where they can be listed, we feel we will likely see more IPO opportunities from the group.
Which are the sectors that will drive earnings growth momentum in FY25?
After the strong earnings growth over FY23-24, growth in FY25 is likely to be muted, in mid-teens. A few sectors which should grow faster than that are likely to be consumer discretionary, commodities, realty, etc.
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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