Kotak MF says market consolidating; advises to focus on smallcaps for portfolio building

Market is in a consolidation phase, said Harsha Upadhyaya, CIO Equity, Kotak MF, adding that post the fall in the market, smallcaps have become attractive.

"The house currently has around 4-7 percent in cash across their portfolios," said Upadhyaya.

“If one is building a portfolio from 3-5 year perspective, a shift toward mid and smallcaps is warranted and that is what we have been doing in our multipcap portfolio strategies as well,” he said.

When asked about returns from the market over the next one two years, he said if we have a stable government, one can see earnings growth of 14-15 percent and can expect returns in mid-teens over the period of 3-5 years.

The risk for the market is mainly from macro variables like the crude and currency, he said, adding that although crude has come-off sharply in last few weeks, one has to keep an eye on the trend.

“If crude stabilises at around current levels or declines further then it would be great news for Indian economy as well as Indian corporate profitability and accordingly currency would also stabilise or appreciate a bit, making overall equity market outlook healthy,” he said.

Talking about the flows into the mutual fund industry, he said so far they have been similar to the last couple of months, at least for the flows into their funds are concerned.

Talking about the RBI board meet today, he said going purely by the market reaction it looks like a middle ground that is being reached and that is also the consensus expectation. However, if there is an extreme reaction then market will not take it lightly and there could be some repercussions, he warned.

Sectorwise, he said they are invested into one or two housing finance companies and non-banking financial companies that are leaders in their segments.

With regards to largecap IT, he said growth for them will remain stable on back of demand trends. Valuations too have become reasonable, he added. It remains a defensive sector and they have a neutral to overweight stance on the sector.

On consumption space, he said the consumer discretionary demand seems to be taking a backseat. “In our portfolios, we have turned negative on discretionary consumption pockets and accordingly over last several weeks we have cut positions in autos, white goods and other discretionary pockets,” he mentioned.