Both local and foreign investors are showing significant buying interest in the equities market due to the positive economic outlook, the steady decrease in US Treasury yields, and the assumption that interest rates will shortly decline.Benchmarks for equity for the Sensex and the Nifty 50 are at record highs. The Nifty 50 has increased by more than 18% so far this year. Just in the past two months, the index has increased by around 9%.
Experts point out that India’s macroeconomic environment has some very encouraging signs, even despite the current slowdown in the global economy.
The bond market is showing stability, inflation is comfortably within the target range, and the GDP outlook is bright. Furthermore, the results of the most recent state elections indicate that a stable government will be in place following the general elections in 2024. This increases the probability of a positive trajectory and policy continuity.
The critical decision now lies in determining where to place one’s bets—whether on large caps, mid caps, or small caps.
Identifying Equity Strategy With Experts
Though sporadic profit booking cannot be completely ruled out, experts predict that the bull run will continue despite the optimistic atmosphere in the market. Even while experts point out that a multi-asset approach can be the greatest option for investors, equity is still a desirable asset class.
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Vinod Nair, Head of Research at GEojit Financial Services
Given the high valuation of equities at this time, Vinod Nair, Head of Research at Geojit Financial Services, advises using a multi-asset approach when making investments.
“Our strategy involves a multi-asset approach for investment. Given the high valuation of equities in a slowing global economy, offering a 5 percent yield in line with bond yields, we see merit in diversifying. Debt instruments can provide a decent return with lower risk compared to risky equities,” said Nair.
Nair, for one, is optimistic about India because of the country’s ongoing economic development and the possibility it presents for decoupling.
Because large-cap stocks are currently valued above average, Nair prefers them over mid-and small-cap stocks.
“We feel that large caps are better equipped for the long haul because of exuberant earnings growth, while recent stock performance has been relatively subdued due to muted FII inflows,” Nair stated.
Because of their aggressive values, we predict that the performance gap between large caps and midcaps will close over the next one to two quarters, favoring biggies with a better risk-reward ratio. Large caps are currently trading at or near the long-term average. Furthermore, larger businesses are better positioned strategically to handle challenges posed by the global economy, especially in light of predictions that the US and Europe would see a recession in 2024, according to Nair.
Deepak Jasani, Head of Retail Research at HDFC Securities
The head of retail research at HDFC Securities, Deepak Jasani, noted that some of the good macro news has already been factored into the present prices. According to him, investors would be wise to adhere to their long-term asset allocation ratios and, should they find themselves to be underinvested, increase their equity allocation to the predetermined level.
Jasani emphasized that reviews and rebalances can be done periodically in the equity market.
Even though the values of small and midcap stocks have recently increased, some of those firms might still be worthwhile investments. As and when they occur, more FPI money flows may initially target the liquid large-caps and larger midcaps, and further upside there is possible, according to Jasani.
Nikunj Saraf, Choice Wealth Vice President
Large caps stand out as being especially appealing, according to Choice Wealth Vice President Nikunj Saraf, whereas mid-caps and small caps may be unpleasant.
“A further consideration is the benchmark composition, revealing that the NSE 100 (large caps) has the least exposure to weak companies characterized by low growth and poor quality. In contrast, the NSE SmallCap 250 Index (small caps) exhibits the highest exposure to such weaker entities. Consequently, investors with shorter investment horizons and a conservative inclination may find it prudent to book full or partial profits in the small-cap space,” said Saraf.
Shrey Jain, Founder & CEO, SAS Online
According to SAS Online’s founder and CEO, Shrey Jain, investors might learn to increase their exposure to equities by observing divergence in their asset allocation. If they have insufficient funds, they ought to purchase.
Furthermore, large-cap stocks can be used for tactical stock allocation.
Large-cap stocks are more affordable than their small- and mid-cap counterparts and therefore should be chosen. To limit the downside, market participants should move from small-cap stocks to large-cap companies as general elections draw near, according to Jain.
Despite the apparent upward trend, small pullbacks should not be ignored and be utilized as an opportunity to purchase high-quality equities. Pharma and domestic consumption-focused stocks are expected to perform strongly. Traders need to trial stop loss,” Jain said.