homepersonal finance NewsICICI Prudential's S Naren suggests cutting allocation to small and midcap stocks in 2023
ICICI Prudential's S Naren suggests cutting allocation to small and midcap stocks in 2023
Naren's perspective highlights the importance of strategic asset allocation in investing. His advice to reduce allocation to small and mid-cap stocks in 2023 may challenge the current trend, but he believes it will lead to better long-term returns, echoing the actions of market insiders who are already making similar moves.
S Naren, Executive Director and Chief Investment Officer at ICICI Prudential AMC on Tuesday, September 26, advised investors to reduce their allocation to small and mid-cap stocks in 2023. Despite the recent global market fluctuations, India's equities have remained resilient, driven by structural strengths and robust domestic investor sentiment. However, Naren said it's time for a strategic shift in portfolio allocation.
Challenging the trend
Naren emphasised the importance of asset allocation as a cornerstone of long-term investment strategy. He drew a parallel between the starkly different investment landscapes of 2020 and 2023. In 2020, it made sense to increase equity allocation significantly, but this year, he recommends the opposite approach. Naren acknowledged that suggesting such a shift is often met with skepticism, as it runs counter to prevailing trends.
"In 2018, reducing exposure to small and mid-caps proved wise, while in 2020 and 2021, investing in these segments yielded positive returns. Trimming allocation to these stocks is a recommendation against the current trend," he told CNBC-TV18.
Promoters and private equity action
Interestingly, Naren pointed out that many promoters and private equity firms are already acting in line with his advice. Promoters are reducing their holdings in small and mid-cap stocks, a move that's becoming increasingly common.
Private equity firms are also following suit by trimming their positions in these segments. This collective action suggests a broader sentiment among market insiders that it might be time to reallocate capital away from small and mid-caps.
Large caps lag behind
Surprisingly, despite the growing allure of small and mid-caps, large-cap stocks have been underperforming. This adds weight to Naren's argument for revising asset allocation, emphasising that a well-balanced portfolio is key to long-term success.
First Published: Sept 26, 2023 1:37 PM IST
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