After the exuberance over mid-caps and small-caps in the first half of the financial year, markets experts are expecting large-caps to take the lead in the second half of the financial year.
Experts believe that investors will prefer safe havens because of the uncertainty around various key events. These include elections in India, potential rate hike in the US and crude oil prices.
“In the second half, we should be seeing reasonably good participation into the large cap companies particularly are index-based companies,” said Deven Choksey, MD, K RChoksey Shares and Securities, adding that the large-cap index companies that hold significant weight are likely to attract more amount of money.
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In the first half of the financial year, the mid-cap and small-cap indices outperformed the benchmark Nifty and Sensex by a vast margin. While the Nifty and Sensex returned 13.13% and 11.50%, respectively, the BSE mid-cap gained 34.39%, while BSE small-cap advanced 39.34%.
Calling it ‘tactical’ in the short term, Unmesh Sharma, head-equities of HDFC Securities said, “You could basically stay with the large and small caps and avoid the mid-cap space.” The reason, he explained, is that mid-caps have a lot of froth currently because investors having bought into them due to high valuations in the large cap space.
However, Sharma is not entirely convinced about the threat from oil prices. “On balance, the risks to demand are higher than supply. Once the inventory issues are sorted, oil prices may find a ceiling,” he added.
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Vinod Nair, head of research at Geojit Financial Services believes that while mid-and small-caps are likely to underperform but there are still some attractive pockets and sector-specific stocks that may perform well. “Some sectors are looking fairly priced such as pharma, infrastructure, chemical, sugar, IT and consumption.”
At the same time, the valuation of large-cap companies are still at a long-term average. There are indications of margin growth and visible earnings growth potential for these companies in the third quarter.
