While the quality companies in small, mid and large-caps did well in 2019, brokerages expect this trend to continue in 2020 and advise investment in multi-cap oriented funds.
At a time when the equity market is reeling under pressure and investor sentiment is low, multi-cap funds are worth looking at, say experts.
Data shows that midcaps outperformed largecaps significantly during FY15-18, but the trend saw a reversal amid NBFC crisis and corporate defaults.
While the quality companies in small, mid and large-cap spaces did well in 2019, brokerages expect this trend to continue in 2020 and favour investing in multi-cap oriented funds.
Diversification, however, is the key to maximising profit and minimising risks and one should avoid playing the mid and small-cap theme blindly, brokerages said.
"The divergence in return is higher within the mid-cap and small-cap category. Therefore, proper diversification among mid and small-cap funds is also required," said ICICI Direct.
"Lumpsum investment in mid and small-cap funds at current levels may be considered. However, the core portfolio should always comprise multi-cap oriented funds with accumulation being done through a SIP approach."
Jharna Agarwal, Head, Anand Rathi Preferred, is of the view that one should invest as the risk profile.
"Our recommendation is driven by an investor's risk profile. An aggressive investor must accumulate mid and small-cap funds with a longer investment horizon, given that the segment has seen a sharp correction over the last 2 years," Agarwal said.
"A conservative investor should look to diversify across large and multi-cap funds, where the multi-cap fund will help generate alpha from its underlying exposure to mid and small-cap stocks, while the large-cap fund will provide the required stability to the portfolio."
The calendar year 2020, so far, has not gone well for the Indian market, thanks to an unimpressive Budget and weak global cues after the coronavirus outbreak.
Market benchmarks did hit their record highs in January 2020 but turned volatile soon. As of February 26, the BSE Sensex has come off over 3 percent, while the Nifty has retreated 4 percent. BSE Midcap and Smallcap indices are up 1 and 4.6 percent, respectively.
In the near term, more consolidation is expected. Market experts and brokerages are of the view that any correction amid profit-booking should be used as a buying opportunity to accumulate and increase equity allocation.
Mid and smallcaps have seen a meaningful correction over the last few years and are available at attractive valuations. Even though they may continue to see volatility, experts believe they could outperform largecaps in the near term.
"We have seen the broader markets picking up with the mid and small-cap segment outperforming Nifty50 in January 2020. Given that the mid and small-cap segment has shown signs of recovery, they will remain fairly volatile in the near-term but could outperform the large-cap segment in the longer term," Agarwal of Anand Rathi Preferred said.
History shows that markets perform in cycles and predicting performance is a difficult and futile exercise.
"No fund outperforms across all investment horizons. Every fund performs in cycles. Hence, investors should be more cautious while investing in the best-performing fund," said ICICI Securities.Disclaimer: The views and investment tips expressed by 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.
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