Even as Nifty 50 extends losing streak for four months, Motilal Oswal favours large-caps

Motilal Oswal is biased toward largecaps, with a 76 percent allocation in its model portfolio.

The Nifty 50 index has extended its losing streak, closing in the red for the fourth straight month. Over the past year, large-cap stocks have gained 8 percent, while small caps have risen 6 percent. However, domestic brokerage Motilal Oswal noted that it favoured large-caps in its model portfolio.

However, both categories have lagged midcaps, which recorded an 11 percent increase. Looking at a five-year horizon, midcaps have outperformed large caps by 101 percent, while small caps have surpassed large caps by 75 percent.

On the global front, key equity markets such as the UK, Korea , Brazil, Taiwan and MSCI Emerging Markets ended January 2025 in positive territory. On the flip side, China, Japan, and India posted monthly declines. On a dollar-adjusted basis, Indian markets recorded a 2 percent drop.

Currently, the Nifty 50 is trading at a 12-month forward price-to-earnings (P/E) ratio of approximately 20x, below its long-period average (LPA) of 20.6x. Meanwhile, broader markets are trading at significant premiums compared to their historical averages and the Nifty.

Motilal Oswal notes that earnings remain under pressure due to weak consumption and a drag from commodities. With the government shifting focus from capital expenditure to boosting consumption in its latest budget, the brokerage anticipates portfolio realignment and a potential moderation in valuations for the Industrials, Capital Goods, and Manufacturing sectors.

The underperformance of Consumer Staples may be nearing an end, as the government's Rs 1 lakh crore tax relief for middle-class taxpayers is expected to boost consumer spending in the coming quarters. After facing a steady de-rating since FY20, consumption-related stocks, particularly in the staples segment, could see a rebound in their valuation multiples.

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"Overall, with broader markets trading at significant premiums vs. their own LPA

and Nifty, we remain biased toward largecaps, with a 76 percent allocation in our model portfolio. We are OW on Consumption, BFSI, IT, Industrials, Healthcare, and Real Estate, while we are UW on Oil & Gas, Cement, Automobiles, and Metals," said Motilal Oswal.

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