Krishna Kumar Karwa of Emkay Global said the rally seen in the market is largely led by 5-6 largecap companies but midcaps and smallcaps are distance away from their peaks seen in January 2018.
The market has made solid comeback, after more than 10 percent correction seen in February and March 2018, with Nifty rising 14 percent from its March lows and Sensex gaining 15.5 percent.
"The market lost euphoria three-four months ago and saw deep correction which was awaited for long but look at the recovery after that sell-off. The major reason behind this is corporate earnings which are more or less in line or better-than-expected," Krishna Kumar Karwa, MD, Emkay Global Financial Services told CNBC-TV18.
He said the rally seen in the market is largely led by 5-6 large-cap companies, and the mid and smallcaps are far away from their peaks seen in January 2018.
The broader markets also saw sharp correction that was deeper than the frontliners. This was fairly expected because Nifty Midcap and BSE Smallcap indices rallied 47 percent and 57 percent, respectively, in 2017. Both indices showed decent recovery from 2018 lows after falling sharply, but they are still down 9 percent and 12 percent, respectively, in 2018.
"Post deep cuts, decent recovery has happened but there is still decent amount of volatility likely in the broader space," Karwa said.
He further said the liquidity is going to be a challenge globally due to rising interest rates, though domestic flow remained stable. "Unless we have bigger amount of FII flow in midcaps and smallcaps, we still remain cautious on the space."
On the domestic flow front, he said mutual funds have still been getting Rs 7,000-8,000 crore worth of funds through systematic investment plan (SIP), which is decent amount of flow and will continue to do so going ahead but large ticket investors (institutional) where there has been a fall in flow.
But Karwa is not concerned about large-ticket investors' flow.
Sindhu Sameer, Co-Head Equity Sales at Emkay Global Financial Services said retail flow through SIP of around Rs 6,000-8,000 crore are marginally dipping but in absolute terms, it is still an outstanding number to see.
"My father used to say invest in provident fund but now the situation has changed and I will advise my daughter to invest in SIP."
Overall, India has surplus capital, stability in crude oil prices, etc. so it is on a slow grinding wheels, he feels. It means India is on a growth path.
He said there will be some kind of hiccups but in the longer term, it will not affect growth in India.
Krishna Kumar Karwa's Take
In the chemical space, there is a tailwind from China angle, wherein some capacities closed down for various reasons but individual companies in India are reaching their size and scale in a such way that global investors want to use India as a manufacturing wave, Karwa said.
He sees lot of scope in specialty chemical space. "Biggest companies in the space have Rs 12,000-13,000 crore in market cap which indicated that there is still large scope left."
Emkay Global has ICICI Bank and HDFC Bank in its portfolio.
While asking on corporate banks, Karwa said retail private banks have done extremely well and should outperform over next 12-18 months. "These corporate facing banks may post stellar returns going ahead."
Non-banking finance companies have shown strong recovery in earnings and even in the stock performance after that bad era of GST and demonetisation.
The only headwind Karwa sees is in the housing finance companies due to rising interest rate scenario. "This space may struggle for next 1-2 years."
He believes rural India facing NBFCs are in a sweet spot and they seem to be doing very well going ahead where he is positive on.
Unsecured loan space will also continue to do well while asset management company and wealth management firm are good long term stories, he said
Sindhu Sameer on Sectors
FMCG companies business model has been getting superior and there is no scary moment in the space, he said. "There is potential fear of derating but with five-year view, this sector still makes sense to invest."
"In the last two quarters, compounded annual growth rate in entire sector was 17-18 percent and in top companies the growth was 18-19 percent. Even return on equity notching up by 3-4 percent," he reasoned.
Global market leaders in several sectors (like Motherson Sumi in auto ancillary space)
Overall there was crisis 2-3-year back but these kind of companies come back very nicely, he said, adding these business models have proven that.In a quarter or two, due to rising commodity pressure there might be some pressure but it is the time to hold such good companies considering their acquisition pace.