ETMarkets Fund Manager Talk-Risk-reward currently more favourable towards largecaps, large midcaps: Mayur Patel

economictimes.indiatimes.com:

MUMBAI — The strong inflows into midcap and smallcap funds drove the outperformance of the broader market in the recent months, but the risk-reward doesn’t seem too favourable at the current juncture, according to Mayur Patel, fund manager — listed equity, 360 ONE Asset. It’s worth noting that the price-to-book valuation discount of the midcap and smallcap Indices compared to largecap indices, have significantly narrowed, he said.

“Given the current scenario, it appears that the risk-reward balance might be more favorable for larger mid-caps and large-caps,” Patel said in an interview with ETMarkets. Edited excerpts:After the 4 months of the rally, do you think the equity market is overheating or you see more legs to this rally?Equity markets often defy expectations, catching investors off guard, especially during times of strong consensus.

The last four months have seen an unexpected 14% rebound, contrary to expectations of a flat or negative return in 2023. Rather than attempting to predict short-term market movements, a more valuable approach involves analysing risk-reward dynamics from multiple perspectives.

Presently, the BSE Sensex trades at a price-to-book ratio of 3.5x, which is a 13% premium to its 20-year historical average. However, encouraging domestic macroeconomic conditions have surpassed expectations, partially offsetting concerns about premium valuations, and providing investors with a sense of reassurance.

So, India’s fundamental outlook appears reasonable from a medium-term perspective.The broader market (mid and small caps) have outperformed benchmarks by a wide margin. Do you see this outperformance continuing?The impressive performance of the smallcap and midcap indices can be largely credited to