D-Street Talk | This fund manager managing over Rs 90000 cr in AUM likes largecaps over smallcaps now

Midcap & smallcap indices might have rallied 20-40% so far in 2021 compared to about 13 percent return in the Nifty50, and BSE largecap index, it is time to turn cautious as valuations for the broader market look stretched, says Mihir Vora, Senior Director & Chief Investment Officer, Max Life Insurance in a D-Street Talk podcast with Moneycontrol.

Mihir has more than two decades of in-depth experience across asset classes including Equity, Fixed Income & Hybrid funds and manages over Rs 90,000 cr in Asset under Management (AUM) in FY21.

“Valuations are stretched for smallcaps as well as for largecaps, but relatively small & midcaps have covered all the underperformance of 2 years. There is a bit of valuation froth in the market,” he said.

“In the last 12 months, smallcaps have covered up all the underperformance since 2018. There is a bit of valuation froth, and we look at some of the smallcaps, they are trading at elevated PE multiples which has not been the case for a very long time,” explains Vora.

At this point, Vora is more comfortable with largecaps compared to mid & smallcaps.

What will drive next leg of the rally?

IT, pharma saw massive buying interest in 2020 amid the pandemic, but as India moves towards unlocking of the economy, domestic economic themes will be the theme to watch out for.

“For the last 12 months we have been more externally biased as we looked at IT, pharma, ancillaries, and chemical, but for the next 3-12 months, it is time to start looking at sectors which are domestic recovery play,” added Vora.

“On the global front, the US and European economies are bouncing back at a rapid pace due to fiscal stimulus along with monetary stimulus (Fed balance sheet has doubled in the last one year or so). For India, we are still lagging in terms of economic recovery,” says Vora.

For India, it is just a function of time when India will bounce back, suggests Vora. It may take a while, but will bounce back. Hence, it makes sense for investors to look at sectors which are domestic consumption sectors.

On Retail Investors: 

Vora in the D-Street Talk highlighted that retail trading is picking up pace, it is already more than 60-70% of market volume which is definitely on the higher side.

But, we did see this kind of participation before as well. However, some of the participation could be structural in nature thanks to the new Apps which has given the ease of entering the market with a small amount of Rs 10,000-30,000.

These Apps are making it easy for investors to trade even if they are in a full time job, and with low interest rates, equity becomes a preferred play, explains Vora.

(Tune into the podcast for more)

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