Small caps damage largely over, sell into commodities: Dron Capital
“My view is that the small cap damage from hereon is done. The one way slide that has been happening will get arrested and from hereon it will be a stock-pickers’ market where certain themes will playout,” said Pathik Gandotra, Partner of Dron Capital while discussing the fundamentals of the market.
The Nifty Smallcap 100 index has fallen 2.3 percent in the last week, and 5.2 percent in the past month. Many market gurus have warned of staying away from these stocks as a correction due to the benchmark indices rising to all-time highs is predicted. However, Pathik Gandotra, Partner of Dron Capital does not believe so.
“My view is that the smallcap damage from hereon is done. The one way slide that has been happening will get arrested and from hereon it will be a stock-pickers’ market where certain themes will play out,” said Gandotra.
The small caps have outperformed large caps by a roaring margin in the last six months.
"It is time to take a breather. The valuation differential between large caps and small caps was looking stark. So that has corrected. Smallcap correction often always happen in this manner only. The index corrects about 10-12 percent and individual stocks correct between 25 percent and 40 percent. That has happened,” he explained.
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In terms of the commodity supercycle, Gandotra believes the supercycle has already happened.
“With liquidity awash in the market, any trend that you find gets taken to its extremity, which is exactly what happens even in the PLI plays. Once those things happen then there is a period of lull. In commodities I don’t think you can get the extended bull markets, your bull market has already happened. So from hereon, you will get trading rallies at best and I would advise people to sell into those rallies instead of buying,” he mentioned.
On financials, the bad news is done and priced in, according to the Dron Capital analyst.
“There is going to be some general economic revival which is going to happen, so I would prefer to start looking at high quality financials which are often very expensive in traditional value terms but those are the only ones which can generate long-term wealth,” he shared.
For the full interview, watch the accompanying video.
(Edited by : Abhishek Jha)
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