Daily Voice: Why this investment veteran sees better risk-reward in largecaps, stays bullish on industrials

Do you think it's time to reduce exposure to midcaps and smallcaps and shift focus to largecaps?

First, the market cap of a company doesn’t say anything about its potential to create wealth in future. It does, however, tell you about the liquidity and potentially the volatility of the company’s share price. Unfortunately, the crowd gets excited or depressed about the smallcap category as a whole. This leads to mispricing in many securities at market tops as well as in market tanks.

In the past year, too, market participants got very excited about smallcaps as they rallied. Hence, we see better risk reward ratio is better in largecaps in the past couple of months.

Do you believe FY25 will be robust in terms of earnings growth?

We expect about 20 percent growth in FY24 and then a 14 percent growth in FY25. This is a very healthy growth on top of a good growth rate in FY24. Export-oriented sectors are likely to experience back-ended growth. Near term earnings are likely to be capex driven.

Your top bets for the next financial year...

We believe the risk-reward is favourable in financial sector, especially private banks. Capex-oriented sectors like industrials and infrastructure are expected to continue on their growth trajectory considering the strong order books.

Within consumer discretionary, automobiles continue to benefit from premiumisation trend. Other discretionary sectors are likely to rebound around the next festive season. Early signals of monsoon being normal in the coming year will help revival in the rural economy.

Do you think the market is cautious ahead of elections? Is there any large correction likely in this calendar year? 

General elections are mostly discounted in the stock prices. A negative surprise may cause a sharp reaction. As far as corrections are concerned, as Robert Shiller says, “a correction in the bull market comes like a thief in the night”. It is difficult to predict when.

Do you see a rebound in commodity prices? 

In case we see a revival in the Chinese economy and less-than-expected slowdown in the US, it is possible that commodity prices may bounce. However, we are not assigning a high probability to this scenario.

Inflation, in 2024, is likely to be benign and hence the interest rates globally are expected to decline. India has many diversified sectors contributing to earnings growth. Hence we do not expect a significant impact of the same in the FY25 earnings.

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