Expert view: FOMO at play; mid, smallcaps may continue to outperform largecaps, says Amar Ambani of YES Securities

Expert view: Amar Ambani, Executive Director at YES Securities, believes that despite several mid-and small-cap stocks being at frothy valuations, the sector as a whole may continue to outperform large caps. He says stocks trade at a premium in a buoyant growth phase backed by significant liquidity. In an interview with LiveMint, Ambani shared his views on the market outlook, his expectations from the Union Budget 2024, and sectors he is positive about.

Edited excerpts:

What is your medium-term outlook for the Indian stock market? What strategy should investors follow?

I believe headline indices will thrive in an uptrend continuum.

I won’t be surprised if the Nifty 50 scales 27,000 by the end of 2024.

In all probability, the market may become more expensive before a correction happens at the headline level.

In such an environment, investors would do well to reposition slightly in favour of large caps.

As for the mid and small-cap portfolios, it is advisable to exit those stocks with astronomical valuations, devoid of high growth visibility.

What are your expectations for the upcoming Budget? Can we see a post-Budget rally?

Given the RBI payout and tax buoyancy, the government has ample breathing space on the fiscal deficit front.

Consequently, government capex as a percentage of GDP will remain high.

All the same, a slight tilt towards populism can’t be ruled out, and certain measures to revive rural demand seem imminent.

The PLI scheme benefits could be extended to component manufacturers, and the ports sector could see a few incentives coming its way.

Certain import duty structures are likely to be tweaked to favour domestic production.

As regards the sticky issue of LTCG, the status quo may prevail, as, at this point, the government doesn’t need the cushion of a revenue boost.

What keeps the mid and small-cap segments high despite concerns over froth-building?

When a buoyant growth phase is backed by significant liquidity, you get a situation where stock valuations trade at a premium.

India is witnessing a mindset change where people are more upbeat about financial savings than physical savings; within financial savings, we are witnessing a free flow in favour of stocks and mutual funds, away from the conventional haven of bank FDs.

This trend will not change anytime soon. In fact, the pull is so strong that the younger generation has fallen in love with stocks, with or without adequate knowledge.

FOMO (fear of missing out) is also at play, which is keeping many people from committing more funds towards the market, more by default than design.

What should be our strategy for the mid and small-cap sectors?

Many of these are quality names with a proven track record of growth and management.

They will continue to outperform large caps meaningfully. Having said that, we also have a long list of suspect players who are discernibly frothy and bereft of fundamentals.

The regulator is well aware of this reality, which explains talks like higher lot sizes in F&O and measures like trimming the number of stocks allowed for funding and so on.

I know one thing for sure: When the regulators are intent on setting things right, right things will happen sooner or later.

What key factors can deal a blow to market sentiment going ahead?

Sentiments could be dampened if the rural economy fails to script a reasonable recovery if social spending is marred by over populism, or if capital market taxes are tweaked higher.

Should we see a correction, will it erase this year's gain?

When a correction does happen, it will likely be a big one. 10-20 per cent corrections are not unusual in a bull market. However, the long structural uptrend will remain intact.

What sectors look attractive to you for the next one to two years?

I would rate real estate very high, given the perennial demand for homes, shrinking unsold inventory, and strong balance sheets of organised developers.

Capital goodsare another crucial space which is imperative to support the country’s infrastructural development, manufacturing and export themes.

Financials look reasonably valued and are integral to India's growing economy.

I find power stocks a credible long-term play, given the burgeoning electricity demand across India, including residential, industrial, and data centres.

Among other spheres, I like select consumer discretionary and telecom.

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Disclaimer: The views and recommendations above are those of the expert, not Mint. We advise investors to consult certified experts before making any investment decisions.