Anish Tawakley, Co-Chief Investment Officer for Equity at ICICI Prudential Mutual Fund, believes that there are too many risks in the small- and mid-cap space, citing high price-to-book ratios and weak competitive positions of some companies. As a result, even his own small-cap portfolio has a significant allocation to large caps, which he believes offer a more favorable risk-return trade-off. Tawakley’s views are supported by recent market trends, as the Nifty and Sensex have seen a sharp rally, while mid and small-cap indices have been relatively volatile.
The Indian stock market has recently experienced a strong surge, with the Nifty 50 index rising 6% in a single week, its best performance since February 2021. The midcap and smallcap indices have also seen strong gains, with the former rising over 7% and the latter up 8%, its best week since April 2020. However, not everyone is optimistic, with Rajeev Thakkar of PPFAS Mutual Fund cautioning that the market bottom will not come about through a single broad-based correction, but rather on a stock-by-stock and sector-by-sector basis. Ramesh Damani, a market veteran, agrees, pointing out that market corrections are natural and short-lived, and that investors should maintain their calm and conviction.
In recent weeks, the Nifty 50 has surged over 1,500 points since hitting a low of 21,964 in March, indicating a strong upward trend. While some investors may be taking a breather, experts believe that the recent correction is part of an ongoing bull market, rather than the start of a bear phase. Overall, investors are advised to be patient and selective in their investments, focusing on individual stocks and sectors that exhibit strength and resilience.