‘Mid, small caps still trade at a huge premium to largecaps despite correcting 15% in 2018’

Mihir Vora, Director and Chief Investment Officer at Max Life Insurance, said the BSE Smallcap & Midcap indices are still trading at a huge valuation premium to largecaps despite correcting almost 15 percent since January.

“One should look at specific mid and smallcap stocks and not as a basket as a whole. Overall, valuations at the index level are at a significant premium to largecaps. Going forward, investors should focus on earnings and valuations rather than trying to take a macro call on the segment,” he told CNBC-TV18.

Financials
Vora said the market share of non-banking financial companies has inched up because state-run banks are leaving the credit space wide open for private players like NBFCs and private sector banks. “The cost of funding is a bit of worry, but we feel that the pricing power will continue to gain.” However, he is a bit perturbed by the valuations and is underweight on the segment.

Realty
Max Life Insurance has a little exposure towards the real estate segment. “We are looking at players that are present in the right geography and offer scope for growth. South-based players have tremendous scope for growth. We are looking at individuals stocks here rather than taking a broad call. The residential segment is still weak while there is some traction on the commercial side.”

IT
Vora said Max is increasing exposure to the IT space despite a huge rally in 2018. “The optimism is largely based on two tailwinds: a) The US economy is quite resilient, and b) rupee depreciation versus the dollar, thanks to a rise in crude oil prices.”

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Mihir Vora

Director & Chief Investment Officer|Max Life Insurance

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Consumer basket
Two pillars which are seeing growth is the consumer segment and government spending, Vora said, adding that he would focus on staples and discretionary if he had to take a top-down call.

Pharmaceuticals
Vora finds it an interesting space as the worst of earnings downgrade may soon come off. “We may not see earnings reach the peak which we saw in FY16 because the pricing situation in the US has become much more competitive.”