Good news mostly priced in; Kotak Institutional Equities sees better risk-reward in large caps

Sanjeev Prasad from Kotak Institutional Equities believes most good news is already priced into the broader market and currently large caps seem to have a better risk-reward ratio.

He believes the surge in some midcap stocks might be excessive. “There is a lot of froth in many of the mid-cap and small-cap names,” he noted.

This is particularly evident in the mid and small-cap sectors, with notable frothiness observed, especially in areas related to capital investment, including capital goods, defence, electronics manufacturing services (EMS), renewable energy, railways, and currency markets, he said.

Prasad pointed out that numerous midcap stocks have experienced significant gains beyond their fundamental values. While positive news continues to emerge, he raised concerns about investors adding more market capitalisation without fully realising that much of the favourable news is already factored into stock prices.

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He noted that finding value across different market capitalisations and sectors has become challenging. Despite the cautionary tone regarding mid and small-caps, Prasad highlighted potential opportunities in specific large-cap names, particularly in the banking sector.

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For the entire interview, watch the accompanying video