Samvat 2076: Mid and smallcaps may outperform benchmarks from here on, says Navneet Munot of SBI MF

“Mid and smallcaps peaked around January 2018 and after that we have seen a huge correction. In fact the Sensex and Nifty is also driven by a few handful of stocks and rest of the market has not done as well. So, valuations have certainly become a lot cheaper compared to where they were a year or year-and-a-half back. In fact, that time there was a lot of froth in mid and smallcaps which has got corrected. As the growth becomes more broad based, as we see the cyclical recovery, as the overall environment improves, the flow improves. I think there is a possibility that mid and smallcaps outperform from here on,” he said.

Speaking about increasing amount of money coming into mutual funds, Manish Gunwani, CIO-Equity Invst at Nippon India Mutual Fund, said, “If we see what are the underlying drivers for this, one is the solid macro stability we have seen over the last few years. The current account deficit is under control and more importantly inflation. If you think about it, what is the competition for this Rs 8,000 crore, it is real estate and gold; both are linked to inflation because gold also drives a lot on rupee depreciation which is linked to inflation. Real estate is seen as a classic inflation hedge. So, inflation being in control, I would think that this systematic investment planning money or the trend growth we are getting in the amount of money that is coming into mutual funds, I think that should hold.”

On divestment, Mahesh Patil, Co-CIO at AB Sun Life AMC said, “We have been engaging with the government and the disinvestment ministry. They are seriously listening because they have indicated that they will probably stop the ETF route. You do not see long term investors coming in ETFs, it is essentially the arbitrages who come for discounts. What happens is that every time you come with the next issuance, the stock price is lower and that has eroded the value of the PSUs. Some of these companies are now at distress valuations and price to earnings, dividend yields in some of these good quality stocks is around 6-7 percent. So, I think if you really go on divesting strategic and approach long term investors through road shows, then you can place it to a lot of long term investors not only in India, but outside India which can actually whet their appetite. There are companies with good fundamentals, with good steady cash flows, good dividend yield which can attract a lot of these funds globally and that would also lead the government to realise better value than what they are currently.”