While the Sensex is now flirting with a technical correction after climbing to a record high in February, expensive smaller stocks may have more to lose, the fund managers said.
“Midcap euphoria has picked up and people are now operating in a casino,” said Aneesh Srivastava, chief investment officer at Star Health, which overseas about $694 million in India assets. His firm has started nibbling at shares of some large companies and plans “meaningful buying” on corrections, especially in bank stocks.
The easy monetary policies of global central banks have lifted midcaps
more than large stocks as they were relatively very cheap, but that’s not the situation anymore, Srivastava said. He also sees larger companies as better equipped to navigate crises and opportunities, and therefore to win market share from smaller rivals, once vaccinations curtail the spread of infections.
The Indian midcap gauge is trading at 21.3 times 12-month forward earnings estimates while the Sensex is at about 20 times, according to data compiled by Bloomberg.
Sumeet Rohra, a fund manager at Smartsun Capital, said “there is more margin of safety in larger names now on valuation, while a continuation of the selloff can evaporate liquidity from smaller names at a very fast pace.”
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