![Will small and midcap rallies continue and have more momentum vs largecaps? Vinit Sambre explains](https://img.etimg.com/thumb/msid-111569268,width-210,height-158,imgsize-23608,resizemode-75/will-small-and-midcap-rallies-continue-and-have-more-momentum-vs-largecaps-vinit-sambre-explains.jpg)
The largecaps were expected to make a comeback, but it is the midcap and the smallcap indices that continue to lead the rally. Do you expect this to continue and have a lot more momentum in the broader markets versus the largecaps?
Vinit Sambre: Incrementally it is becoming very difficult to forecast and predict the short-term moves. But when we talk about the largecaps, midcaps, and smallcaps and the divergence in the performance, previously what used to happen is that there used to be some kind of divergence in the business performances of the smallcaps, midcaps versus the largecaps which used to have some kind of implications in terms of the stock price performance.
But what we have been seeing, post COVID in the last three years is a broad-basing as far as the growth is concerned and many sectors which had not participated earlier in terms of the broad-based business growth which is, let us say, the engineering, the railways, the real estate, these are large segments and these have implications on the broad set of companies which falls within the mid and smallcap space.
So, what we are seeing is that growth and visibility and anticipation of growth are becoming more broad-based and are slightly better versus the past and hence, we are seeing that there is a correlation between the largecaps, midcaps, and smallcaps and in reality, these are also the segments which have been doing extraordinarily well because there is a lot of flows which is backing these categories. So, till the time the growth matrix remains intact, I sense that small and midcaps also deserve a fair share of allocation.
Just today, given the valuations where we are, I think incrementally investors should align to slightly longer-term thinking, near-term could be challenging, maybe one year one should give up returns expectation is what I can sort of guide or warn the investors.
Earnings are strong, GDP is strong, and the sectors you mentioned are doing very well. But the biggest mirror of the economy is what banks do and with banks now there seems to be a slowdown both in terms of credit growth and deposit growth. So, if banks are slowing down, then do you think it is a matter of time economy will also slow down?
Vinit Sambre: That’s a very fair point. This is what I was referring to when I said next year could be challenging and I am coming from the same thought process. Let us say in the last three years, we saw earnings growing at a CAGR of 22-23% let us say as far as the Nifty is concerned. And this year, the estimates which are coming out, the consensus estimates are talking about it started with 15%, now we are getting down to 13-14%. So, overall, there is a sense of slowdown.
A lot of the businesses are seeing moderation, the benefits that a lot of these companies got because of lower raw material prices, are also going away and a combination of all of that is why we believe that earnings could slow a bit over the next two or three quarters and which is where the valuation premium which a lot of these companies have got, maybe it calls for some consolidation or some time correction or absolute correction.
So, the whole thought process is that as we enter the next few quarters, there could be a slowdown. You are right that in the case of banks, retail lending has also seen a slowdown. And in this context, I sense that the texture of or the mix of the growth should change. The urban which was doing extremely well should give some way to the rural anyway because the government is also likely to focus on growing the rural side of the economy. So, I sense that the balance would change and the growth moderation would be there and hence the valuation should remain under check.
Vinit Sambre: Wish I knew that. But I sense that as I said, what drives the flows also is the fact that the visibility of growth and till the time you see the visibility of growth and those factors present, I sense that flows would keep chasing the visibility of growth and what metrics can break the growth down is something which today it is very difficult to think.
Maybe as you enter the slow quarters, that will raise some kind of concerns in the minds of investors around growth and there could be some moderation over the next one or two quarters. But as we are marching ahead in terms of economic expansion over the next few years, you may have volatility in the short term, but the long-term picture looks okay. Whenever we talk about small and midcaps, remember we have always mentioned that any investors walking into this category, especially at high points, need to keep expanding their time horizons, because, in the short term, there could be some blips that could hurt the sentiments of the investors.
You like healthcare. Now, that is an odd one out because healthcare is a very divided theme, I can look at Pfizer, which is domestic; I can look at Aurobindo Pharma, which is generic; I can look at Cipla, which is mixed. What do you like within healthcare?
Vinit Sambre: We have a basket of companies that are focused on domestic and as well as the US markets as such. We have gradually expanded our exposure to companies where they are getting to the international markets because we see the trends even in the US markets are at the margin shifting, the generic pricing environment is slightly getting better, and companies have been showcasing good results.
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(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price