Shift towards largecaps may indicate slowdown in small & midcaps: Paras Matalia, Samco MF

Paras Matalia

In recent months, Samco Mutual Fund has witnessed a shift in momentum from small and midcaps towards largecaps, says the firm's Fund Manager and Head of Research, Paras Matalia.

``There has been a shift in trend towards largecap stocks in the last three-four months, which may indicate a potential slowdown in the small and midcap space. However, our strategy adapts to changing market conditions, allowing us to capitalise on opportunities across market segments,'' he explains.

Matalia also spoke about their recently launched Special Opportunities Fund and how they view the impending election results.

Edited excerpts:

Do you have a strategy in place for the potential outcomes of the elections?

Our funds' algorithms work on momentum investing principles. These algorithms automatically adjust equity exposure based on market conditions, with a focus on following rather than predicting market trends. While elections may introduce short-term volatility, our strategy remains consistent, aiming to navigate market movements dynamically.

What is your outlook for the market going forward? Are there any specific segments or themes you're watching closely?

We anticipate continued stability and policy consistency with the incumbent government's expected re-election. Sectors requiring long-term planning and investment, such as infrastructure, real estate, and power, are expected to perform well. Additionally, we see growth opportunities in the defence sector, driven by increased allocation to defence spending. Private banking and quality factor investing are also areas of interest, given their undervalued status and potential for attracting foreign investment.

Can you explain the goal behind the Special Opportunities Fund that has been launched?

The fund aims to capitalise on special opportunities beyond traditional corporate actions like buybacks or mergers. These opportunities can lead to better business outcomes, such as improved revenues, growth outlook, and stock prices. The goal is to invest in sectors and stocks where these special opportunities are present, regardless of the market conditions.

The fund is sector and marketcap agnostic. It can invest in any sector or stock where special opportunities are identified. Currently, opportunities are visible in sectors like defence, energy, metals, PSUs, and manufacturing. The portfolio will focus on sectors with special opportunities, along with a combination of earnings and price momentum.

Corporate actions will be evaluated based on their potential impact on earnings and stock prices. Our team assesses each opportunity, considering factors such as the risk-reward ratio and expected outcomes. While specific criteria may vary, the goal is to identify opportunities with favourable risk-reward profiles that align with the fund's objectives.

With the emergence of several special opportunity funds in the market, what makes this strategy attractive now?

The current market environment, with geopolitical tensions and upcoming elections, is expected to be volatile. This volatility makes special opportunity funds appealing, as they have historically shown lower correlation with market movements during such periods.

What is your analysis of the recent earnings season? Any notable trends or surprises?

FMCG, defence, and manufacturing sectors have performed well, driven partly by government policies and investment. However, private capital expenditure remains a concern, as sustained market growth requires a broader base beyond government-led initiatives. Strengthening private investment will be crucial for sustained market growth and earnings performance.

How do you view the current debate around small and midcap stocks, and how does it influence your investment strategy?

While small and midcap stocks have seen recent volatility, our momentum-based strategy remains focused on capturing market trends dynamically. There has been a shift in trend towards largecap stocks in the last three-four months, which may indicate a potential slowdown in the small and midcap space. However, our strategy adapts to changing market conditions, allowing us to capitalise on opportunities across market segments.

What is the current churn rate for your funds?

Churn rates vary across our funds, with the Dynamic Asset Allocation fund experiencing the highest churn, followed by the Active Momentum and the Special Opportunities  funds. Churn rates exceeding 100 percent are common due to the dynamic nature of our momentum-based strategy, which adjusts portfolio allocations based on market trends. As a fund house, our focus remains on capturing alpha through dynamic portfolio management, rather than static asset allocation.

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