MC Market Poll: Most experts advise large caps with better valuations rather than betting on small-caps with quick return potential

Over the last one month, the BSE SmallCap Index and BSE MidCap indices have fallen around 7 percent each and are currently trading at 52,805 and 45,556. On the other hand, the BSE LargeCap index has fallen around 0.29 percent in the same period and is currently trading at 9415.80.

At a time when there is a lot of volatility in the markets with huge intra-day swings, most experts are of the view that investors would be better off betting on large caps with better valuations rather than putting money in small-caps showing quick return potential, as per the findings of the latest Moneycontrol Market Poll.

According to the poll, around 57 percent of market experts say that they would advise investors to go for large-caps with better valuations instead of looking at small-caps for quick returns.

The Moneycontrol Market Poll reached out to market participants across categories – broking firms, mutual funds, AIF/PMS players and independent analysts – and received nearly two dozen responses.

Also read: MC Market Poll: Earnings downgrade biggest risk for Indian equities; returns to be subdued in Samvat 2081

Trivesh D, COO at broking firm Tradejini, says that large-cap stocks currently appeal to investors seeking stability amid volatile market conditions.

“These stocks benefit from substantial institutional backing and consistent earnings growth, unlike small caps, which primarily rely on P/E re-ratings rather than organic earnings,” he says.

For example, he says that, over the last week, the large-cap index declined by 1.2 percent under global economic pressures, yet recent upgrades in the banking and pharma sectors signal potential recovery.

While large-caps tend to lead market corrections due to FIIs reducing their stake, experts note that they also rebound swiftly. Incidentally, one of the other key findings of the Moneycontrol Market Poll was that a majority of respondents believe that in the upcoming Samvat 2081, benchmarks would fare better than the broader indices like BSE MidCap and BSE SmallCap.

“Notably, a leading pharma stock and a private bank saw double-digit gains after surpassing Q2 earnings expectations. If Q1FY25 results fail to meet elevated valuations, mid- and small-cap stocks could face corrective pressures, making quality large-cap investments a safer bet for balancing risk and growth,” says Trivesh.

Over the last one month, the BSE SmallCap Index and BSE MidCap indices have fallen around 7 percent each and are currently trading at 52,805 and 45,556. On the other hand, the BSE LargeCap index has fallen around 0.29 percent in the same period and is currently trading at 9415.80.

But it is not that all experts are seeing investor interest moving away from small-caps.  It also depends upon the quantum of money being invested and the particular stock basis.

Kranthi Bathini, Head of Research at Wealthmills Securities says: “It all depends on the quantum of money they are going to deploy. For large funds, the margin of safety is typically higher in large-cap stocks. In the mid- and small-cap space, it's more about specific stock selection. Some quality mid- and small-cap stocks do offer strong growth potential."

Bathini adds that for portfolio construction, the focus should be on large caps with a higher allocation. However, mid- and small-cap stock-specific plays are also essential.

Interest in mid- and small-cap stocks has not faded, suggest experts noting that people will continue to invest in them.

Bathini adds that when selecting mid- and small-cap stocks, investors like him look at their growth trajectory and apply a top-down approach. “If the underlying valuations are attractive and there’s a strong earnings outlook, they present a good investing proposition.”

Balancing these factors is crucial, say Bathini, especially in uncertain times. “Portfolio construction becomes extremely important. You can’t stay in a single gear throughout; you need to adjust according to market conditions,” he says.

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.