ETMarkets Smart Talk: Stick to largecaps for now as we’re not in a “rip-roaring” bull market: Siddarth Bhamre

After a 12-18 month period of correction, several midcap and smallcap stocks have rebounded, but they are yet to outperform the largecap stocks in a big way.

“There will always be some handful of names in this space which will give a FOMO feeling but overall, if you look at small-cap and mid-cap index, they haven’t done anything exceptional,” said Bhamre, EVP, Head of Research at Religare Broking.

With headwinds in the form of inflation and recession on the global front persisting, Bhamre suggests remaining in large-cap space for now. Edited excerpts from an interview:


After being the worst performing market in early 2023, India turned out to be one of the best performing emerging markets in April. Do you think we are gradually gaining the lost ground?
If we take a slightly longer time horizon, say from June 2022, then till December 2022, India was the best performing market among large economies and even within the EM basket, it was one of the best performing markets.

We did correct more than others in early 2023, but if you look at YTD returns, we are more or less in-line with global peers, whereas, on a year-on-year basis we are leading.

So, it’s the other markets gaining the lost ground to us, while we got back on track after a not-so-great start to CY2023.


Over the last 1 year, trading volumes fell significantly, but do you think we will see a recovery in the coming months?
Market volumes are a function of direction and volatility. Since October 2021, markets have been consolidating with moderate levels of volatility. Portfolio returns have not been encouraging, hence delivery-based turnover and cash volumes have been less.

However, due to various regulatory changes and lack of major market movements, we have seen a surge in participants in F&O markets and its volumes. For cash volumes to increase, we will have to wait for a structural bull market to begin.


Midcap and small-cap stocks have rebounded smartly from their lows. Which pockets look attractive to you?
Yes, they did rebound from lower levels but, in a longer time horizon, they have not yet outperformed the large-caps. There will always be some handful of names in this space which will give a FOMO feeling but overall, if you look at small-cap and mid-cap index, they haven’t done anything exceptional.

We are not in a rip-roaring bull market. With the global economy not in such good shape, we may have days where there could be big corrections in the market in which mid and smallcap space would give way for a certain period. We suggest remaining in large-cap space for now.


Talking about specific stocks, after years of underperformance, the tables have turned for ITC. Do you see more legs to the outperformance in the stock and what are the triggers for the same?
ITC’s long-term strategy of growing and scaling its businesses such as FMCG, Agri, Hotels and Paperboards is well on track. By now, we all know that the cigarette business is more or less immune to taxes and slowdown.

So, it’s a stock with a sturdy growth rate with various levers contributing periodically.

At around 24x P/E, it’s not as attractive as it was in the beginning of CY23. However, any opportunity that the market offers in the form of correction, exposure can be increased in it.


What are your key takeaways from the March quarter earnings? Do you see downside risks to Nifty FY24/FY25 earnings estimates?
Earnings have not given any major positive or negative surprise except a couple of large-cap names in IT. Consumption sector has performed better than the rest, but there has been no major deviation from expectations overall in earnings.

FY24/25 will be an interesting year in which we may see inflation topping out and the rate cycle may reverse.

Recessionary pressure in the US will have a trickle down effect on us as well, however continuation of reduction in input cost pressures may negate a large part of it and keep earnings stable.

The recent domestic employment data suggests that we may see the rural economy coming back on track unless the monsoon decides otherwise.

One risk which has very less probability now is interest rates rising meaningfully and derailing the economy, but that is highly unlikely.


How do you think FY24 will pan out for investors in terms of equity returns? What strategy would you recommend to retail investors?
We are optimistic on the prospects of equities for the coming year as in the last couple of years, markets have consolidated and earnings have caught up with valuations.

However, it won’t be an easy process of investing. One will have to adopt a bottom-up approach with proper sectoral allocation.

We are suggesting our clients to be overweight on selected names in cement, FMCG, auto, consumer durables and IT.
Needless to mention, a couple of large banking names too, are looking attractive at this point in time.

This market is offering opportunities to enter at certain valuation levels and one should not chase stock prices for now.


(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)