Expert View: Valuations are looking expensive for the market as a whole, says BNP's Kunal Vora
Also Read- Expert view: Corporate earnings growth, geopolitical stability key triggers for FY25, says Niraj Kumar Fed officials signaled a dovish reaction at the March FOMC, sticking with a median projection of three rate cuts this year despite higher growth and inflation forecasts, which makes our economist team more confident of the first rate cut to come in June 2024. FED’s stance of maintaining three rate cuts for this year was cheered by the bond as well as the equity market and in our view, any delays might sour investor sentiments. In our 2024 outlook, we mentioned that we expect single-digit returns for Nifty-50 and for mid and small caps to underperform large caps.
Mid and Small cap valuations have expanded led by strong domestic flows. Monthly SIP flows have increased from ~ ₹8,000 crore per month in 2020 to ₹9000 crore plus in February 2024 and we have seen an increased allocation towards mid and small cap funds compared to large caps. Direct retail activity is also higher in mid and small caps.
These strong flows have resulted in their significant outperformance and this has reduced the valuation comfort. While there has been a correction from the peak, we believe the risk-reward is still unfavorable and would stick with large caps. Also Read- FY24 market review: 120 stocks from Nifty 500 gave multibagger returns, 55 in the red; check list of top gainers, losers Our preferred themes for 2024 are ‘growth at a reasonable valuation’ and ‘affluent consumption over mass’.
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