“While the space is small in terms of market capitalization, it is large in terms of the number of stocks,” Vora said.
Some of the themes he likes in the midcap and smallcap segments are speciality chemicals, defence, railways, transmission and distribution, irrigation, logistics etc. Edited excerpts from an interview with ETMarkets:
Although our markets have hit record highs, on a YTD basis, India has still underperformed its EM and DM peers. Do you see scope for a trend reversal?
India has had a stellar run versus emerging markets since 2020 and the outperformance was huge. With China providing some hope, there was some rotation towards China in the early part of 2023, which proved short-lived.
However, the good performance of the past few months means that India is back among the top performers on a 1-year basis.
India trades at a premium to other emerging markets and we believe that this is justified given the good earnings growth outlook and strong macroeconomic situation for the country.
FPIs have been on a buying spree in India. Do you see this sustaining and what are the factors that will drive it?
India offers a structurally higher growth rate compared to developed markets and most emerging markets. Our position as the fastest growing large economy will sustain for a long time.
The hawkish stance of central banks and the US dollar strength are likely to start reversing
in the next few quarters, which will increase flows to markets like India. Moreover, with China increasingly falling out of favour due to its inherent risks, India will be a more preferred destination.
The broader market has outperformed benchmarks by a wide margin. Do you see this outperformance continuing? Which stocks/sectors within the midcap and smallcap segments are you bullish on and would look to bet?
There is some valuation froth being built-up in the smallcap and midcap space. Retail and HNI investors seem to be chasing recent performance and we are seeing record monthly inflows into smallcap and midcap mutual funds.
Having said that, there are ample stock-picking opportunities. While the space is small in terms of market capitalization, it is large in terms of the number of stocks.
The themes that we like in the midcap and smallcap space are speciality chemicals, pharmaceuticals, defence, railways, capital goods and machinery, electronics and white goods
manufacturing, investment in transmission and distribution, water works, irrigation, logistics etc. These are very exciting places and most of these themes cannot be captured in the large cap universe.
Can you take us through the performance of your equity funds in the last 1 year?
Our midcap and smallcap funds have significantly outperformed the market and peers. Our largecap funds have marginally outperformed. Most of our funds have outperformed the benchmarks in the longer-term horizon of 5 years.
What’s your mantra of generating alpha returns?
Our philosophy is ‘Growth at a Reasonable Price’ with a close watch on management quality and governance.
We are active managers of the portfolio, which means that we take significant bets against the benchmarks.
We look at three aspects of growth. One, the absolute earnings growth likely over the next 2-3 years. Second is the revision in growth estimates, and the third is the certainty of the expected growth. We would prefer to hold stocks where we believe upgrades are likely i.e. the market is under-estimating the potential.
With markets at new highs, what kind of asset allocation will you recommend to investors?
Stick to your target allocations. Everyone is different and there is no “one-size-fits-all” formula. As far as equities is concerned, the old adage of ‘time spent in the market’ being more important than ‘timing’ the market still holds true.
Even if one would have invested in each of the past peaks of the Sensex or Nifty, the investor would still have made decent compounded returns over the long-term.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)