Market chasing growth; there's headroom for market to go up but focus on quality: Dhiraj Agarwal

economictimes.indiatimes.com:

Dhiraj Agarwal, MD, Ambit Investment Managers, says “high growth rate is a double-edged sword. When the growth rates are high, the PEs expand and hence the stock price compounds at double the speed as the earnings growth rate. But it works on the reverse as well. If the growth rate slows down, the PE contracts. So, we need to be very, very careful and selective and focus more on quality. ”


After the recent run up and looking at the macros we are staring at, what is your house advice? What are you indicating to your clients?
At this point of time, markets are in a zone where one needs to be very, very selective and very, very quality focused. I do not think it is a bubble yet. There is more headroom for the market to go up but it will not perhaps be as smooth and as easy as what we have seen in the last four or five months where almost anything and everything was flying. It is time to be a bit more selective because the valuations are high but it is not ridiculously high and hence caution is warranted at this point. Being selective is a good idea.

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Why is there such a marked difference in what is happening in the smallcap space versus what is happening in the largecap space? The reason why you call them largecap is because they are better managed companies, better return ratios and have better moat around the business. They should come under premium. Right now, midcaps are at a premium to largecaps. Smallcaps are at a premium to mid cap. I am not even talking about SMEs.
Yes,