From The Economic Times · Kshitij Anand · · 2m
Largecaps Attractive But Selective Mid/Smallcaps Offer Opportunities
Tata MF's Chandraprakash Padiyar says largecaps look better but selective mid/smallcaps still hold long-term potential.
In brief
Tata MF's Chandraprakash Padiyar says largecaps look better but selective mid/smallcaps still hold long-term potential. Tata MF's senior fund manager recommends bottom-up stock selection over market cap-based investing for long-term wealth creation amid improving largecap valuations and selective mid/smallcap…
Largecap Valuations Improve
After a year of midcap and smallcap outperformance, largecap stocks are beginning to look more attractive as earnings growth is expected to improve and valuations remain at or below historical averages.
Selective Mid/Smallcap Opportunities Remain
However, the opportunity in the broader market is far from over, with selective midcap and smallcap companies continuing to offer potential for long-term investors.
Tata MF Fund Manager's Advice
In an interview with ETMarkets, Chandraprakash Padiyar, Senior Fund Manager at Tata Asset Management, says investors should focus on bottom-up stock selection rather than making investment decisions based solely on market capitalisation.
Manufacturing as Wealth Theme
He also highlights manufacturing as a promising wealth-creation theme, backed by improving cost competitiveness, strong balance sheets and ambitions to scale up globally.
Earnings Visibility Critical
Padiyar explains why earnings visibility, cash-flow generation, return on capital and reasonable valuations remain critical to identifying sustainable wealth creators amid global uncertainties.
Smallcap Fund Flows in September
Small-cap funds attracted ₹9,039 crore, while mid-cap funds received ₹7,835 crore in September.
Valuations Not Fully Justified
Selectively we think earnings growth environment remains positive for this segment of the market.One should not take a general view on any segment of the market.
Investor Risk Tolerance Matters
Asset allocation is very important, and each investor should ideally consult with an expert basis his/her ability & willingness to take risk.
Long-Term Focus Recommended
On a long-term basis larger allocation should always be through diversified funds. Thematic/Sector/Market cap specific funds one needs to play tactical depending on the market environment.
Manufacturing Shows Promise
We are increasingly hearing comments by some management teams in the manufacturing space claiming to have cost structures equal to or lower than China.
Financial Health Key for Selection
ROCE (Return On Capital Employed) and cash flow generation are very important from our perspective. Experience suggests that high leverage in the balance sheets forces managements to cut corners during desperate times.
The bottom line
Tata MF's senior fund manager recommends bottom-up stock selection over market cap-based investing for long-term wealth creation amid improving largecap valuations and selective mid/smallcap opportunities.
