"From a long-term perspective, we believe that you need to hold on to long-term compounders over a slightly longer period of time," said Tibrewal.
Midcap mania has gripped D-Street as stocks soared on attractive valuations and hopes of a return of the Modi government. Two top midcap fund managers Pankaj Tibrewal of Kotak Mutual Fund and Gautam Sinha Roy of Motilal Oswal AMC spoke about the stocks they have their eyes on.
"In markets, I believe the answer always lies somewhere in between, it is neither the mania nor the extremely cheap valuations. It is just that after a very long prolonged correction, there were opportunities in the midcap and smallcaps space and intelligent investors are coming back and picking up those opportunities. I also get a sense and this is based on some metrics that I track internally that domestic smart money is coming back into markets and that might have to do with the prospects of election results. This money had started going out exactly one year back after the budget of last year, some of that is starting to creep back into markets and people are taking on risk so there is a risk on mode in markets today and also the fact that there were many attractive stocks lying out there waiting to be picked so people are picking them up," Roy told CNBC-TV18.
In terms of returns, Tibrewal said, "I think from a long-term perspective, we believe that you need to hold on to long-term compounders over a slightly longer period of time. Most of the businesses, which try to own good capital allocators, generate decent cash flows. Barring 12 months if you look at the long history of these companies, they have compounded at a much higher rate than most of the large-cap companies and by far they may be leaders in each of the sectors they operate in. So the way we work in is that in the last 12-13 months, we saw there was a huge divergence of performance between Nifty and midcap and small caps and they reached historical extremes. History suggests that post such kind of divergences, normally smallcap and midcaps tend to outperform over the next 12-18 months. I think the last few days rally is more of a normalisation of that part where midcap and small caps had become attractive on valuation."
"We believe that this year is not going to be the same way which we saw in 2017. It is going to be stock pickers' market and some of the names which you mentioned are at a higher level than what six-twelve months back their stock prices were. Dynamics are going to play a very important role, earnings growth is going to play a very important role, we are not banging on earnings or P/E expansion as was the case in 2017. So I think this will be the year of stock-pickers and there will be a separation of man versus boys in each of the sectors, which we will witness going forward," Tibrewal added.