Keep your portfolio balanced, advices Manish Chokhani, as small and midcap valuations go 'berserk'

"Keep tilting and balancing your portfolio, too much concentration in small and midcap category is not good," said Manish Chokhani

Veteran investor Manish Chokhani has adviced retail investors to be careful with their stock picking in the mid and the smallcap space, where he finds that valuations have gone 'berserk', and multiples have climbed up to twice that of the rest of the market.

Manish Chokhani, Enam Holding's Director told CNBC-TV18 during a conversation said that the small and midcap category, along with the SME IPO space has emerged as a 'bigger worry' than even the futures and options segment of the market.

"That is the risk, some of these SMID names in the fourth quadrant, and what has been going on there is a bigger worry than the F&O space. A Rs 12 crore SME issue attracting Rs 3,000 crore worth of bids are the things you should be worried about."

Chokhkani cited the example of the lower quartile of the NSE 500 group of companies, that has created a lot of wealth, where he fears very few of these companies will graduate to the higher market capitalisation group. Of these 500 companies, the top 130 add up to 75% of India's market capitalisation. The remaining 370 companies, which make up $1.3 trillion in m-cap has seen a lot of price movement and wealth creation. "I am worried about this space," said Chokhani, adding that earnings multiples in this segment are trading at twice that of the rest of the market.

The top 40 listed companies in India add up to be half of India's market capitalisation and mostly FIIs have invested here, though the share prices have not done as well as the broader market name, he said. "All the fun and games have been in the mid and smallcap part of market," added Chokhani.

"If you get the wrong stock in this segment, then god help you," said Manish Chokhani, citing an example of early years of Infosys. The market capitalisation of the IT bellwether hit $46 billion in March 2000, and then took another 20 years to double from that level, he recalled. "If you get your entry price wrong in a smallcap, heaven help you."

"Infosys only doubled from 2000 peak to now, when the stock market (Sensex) rose from 6,000 levels to close to 90,000," said Manish Chokhani.

To guard against any turmoil in the shares in broader market, Manish Chokhani advised investors to avoid too much concentration in smallcaps. "Keep tilting and balancing your portfolio, too much concentration in small and midcap category is not good," he added.

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