Market expectations will have to be recalibrated over the next 12 to 24 months: Sahil Kapoor

economictimes.indiatimes.com:

Sahil Kapoor, Head of Products & Market Strategist, DSP Mutual Fund, says top-line growth is slowing; we already have peak profit margins and drivers of profit margins are absent which can expand profit margins from here and then you question that if earnings growth is going to be 12% to 14%, why would you pay 23 times or in midcap 28 to 40 times earnings multiples? Those expectations will have to be recalibrated and possibly the markets will do that over the next 12 to 24 months.”

What is your market outlook in terms of equity markets in India? The smallcap and midcap indices were getting a bit frothy and the overall clamour was that it is safer to be in largecap stocks. Is that what you are changing your product portfolios to be in terms of what you are recommending to your clients?
Sahil Kapoor: When you look at the broader universe, small and midcaps appear slightly more expensive compared to largecaps on a relative basis.

Recently, we came out with data that the median price to earnings multiple in the SMID universe – which is 101 to 500 stocks – is about 40 times. It was 20 times way back during the 2007 peak.

In this bull market we have seen a very large expansion in price to earnings multiples and there are a number of parallels from comparison to the 2003 to 2007 rally or the 2017 bull market in small and midcaps and what we have today.

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