ETMarkets Smart Talk- Our outlook favours small-cap stocks over mid- and large-caps: Satish Menon

economictimes.indiatimes.com:

“Our outlook favours small-cap stocks over mid- and large-caps. This is because the comparative valuation is compelling and small caps are trading near the long-term averages, while mid & large are substantially above the average,” says Satish Menon, Executive Director at Geojit Financial Services. In an interview with ETMarkets, Menon said: “Small companies generally benefit from a lag effect, hence, demand and operating margin are forecasted to benefit in the next 1 to 2 quarters” Edited excerpts:We have seen a dream run on D-St with Sensex hitting 67000 and Nifty50 heading towards the 20,000 mark. Is this too good to be true and we are running ahead of fundamentals? We find no evidence of over-optimism in the domestic stock market.

YTD, India is underperforming developed markets like the US by 50% (S&P500 18% vs. Nifty50 is 9%), despite the fact that the domestic economy is stable while the US is still at risk of recession. Our valuation is marginally above the long-term average, which is in line with an upgrade in earnings trajectory of 18% in FY24.

However, the upside of our main indices may be limited in the short term as FIIs inflows can slow down due to central banks quantitative tightening and hawkish monetary policy.Small & midcap spaces have also been doing well. China plus factor as well as the fall in raw material price supported the sentiment. How should one play this theme? Currently, our outlook favours small-cap stocks over mid- and large-caps.