'Require money 3 years from now? Shift to largecaps from mid & smallcaps'

A large part of the rally in the equity benchmark was led by a handful of large-cap stocks. Now, most of those have fallen substantially and are available much cheaper.

Kshitij Anand

April 28, 2020 / 01:06 PM IST

Someone who has a requirement for funds three years from now should probably look at shifting from midcaps and small caps to large caps because it will likely take longer for them to recover, Jashan Arora, Director at Master Capital Services, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpt:

Q) A better week for Indian markets, but it looks like 9,300 is a crucial resistance level for the Nifty50. What are your views on the market?

A) The Nifty50 has formed another bearish candle pattern on the weekly time frame charts. As the broader trend is down, the Nifty may face hurdles at higher levels.

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Q) Small & midcaps underperformed. What should investors do if they have small & midcap focused portfolios? Stay or redeem?
A) As you know, the COVID-19 pandemic has created a unique situation in the market. Nobody is sure how the situation is going to unravel, and you should be extremely cautious about your finances and investments.

Specifically, on whether mid-and small-cap investments should be sold, the answer is no. If you think growth will come back, is really in midcap and small-cap companies where the performance can be spectacular over a three to five-year timeframe.

But, when the equity market bounces back after normalcy is restored, the large caps would recover the fastest. With that in mind, someone who has a requirement for funds three years from now should probably look at shifting from mid-caps and small caps to large caps because it will likely take longer for them to recover.

A large part of the rally in the equity benchmark was led by a handful of large-cap stocks. Now, most of those have fallen substantially and are available much cheaper.

Q) Franklin Templeton shuts down six credit risk strategy debt funds. This is the second casualty of COVID-19 after IndiaNivesh. Do you think that investors will again lose faith just like what we saw post-2008 financial crisis?
A) Given the heightened risk aversion of banks, higher withdrawals from funds began, which led to funds selling bonds at a lower price.

There is a poor appetite for various debt securities and very thin volumes, and the problem has evidently accentuated for low rated corporate bonds.

In a positive scenario, if the COVID-19 issue is resolved and the bond market goes back to normal, then there’s a possibility that the fund house will be able to sell some of the debt even before maturity.

But, when that will happen and whether that will happen is uncertain at this point. We have to hope that the companies, whose debt they have invested in, continue to remain in a position to honour their obligations.The Franklin management did point out there could be staggered payments made to investors from the wound up fund, in the form of coupon payments and maturity proceeds. It’s a small cheer, but that’s what there is at present.

Q) Looking at so much of volatility – are there any all-weather stocks which one can look at?
A) Businesses like FMCG (food and sanitation), pharmaceuticals, telecom that people are buying as usual, would probably not be impacted much, so the stocks of these sectors could be the best bet to invest in such a time of volatility.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.