Expert View: Optimism is overdone, consider reducing exposure to midcaps and small caps, says Dezerv’s Vaibhav Porwal

Expert advice : Vaibhav Porwalthe co-founder of Dezervbelieves it is time to take profits in midcaps and small caps due to their high valuations. At the same time, he sees value in large caps. In an interview with Mint, Porwal shares his outlook on the market and discusses economic trends.

Edited excerpts:

What is your medium-term outlook for the market, especially after the budget?

This will be an important budget because it will set the tone for policy measures for the next five years.

We believe that the EU budget must balance increased consumption and investment, which is essential for sustainable economic growth.

Although a weaker majority could push the government to adopt populist measures, we expect it to maintain its commitment to fiscal consolidation.

Although India’s macroeconomic fundamentals are strong, policy efforts will be geared towards transforming India into a developed economy by 2047.

To address the problem of weak rural demand, we expect the budget to introduce various reforms aimed at increasing rural employment and improving farmers’ incomes.

The government has prioritized infrastructure investment, doubling the ratio of capital expenditure to GDP from fiscal 2019 to fiscal 2024.

While we anticipate continued government support for infrastructure projects, we also expect the government to incentivize states and private companies to contribute to the next phase of infrastructure development.

The Indian stock market seems to have factored in most factors and there are also concerns about the high valuation of stocks. Is it a good time to buy stocks?

Given the continued market recovery we have been witnessing since April last year, the equity market appears to be trading at slightly stretched valuations.

It is therefore essential to exercise caution in the current environment. Even if some opportunities may arise, the overall risk is higher at this stage.

This would be a good time to review your portfolio and take profits on some of your investments, especially in the mid and small cap sector.

At Dezerv, we see value in large caps and have consistently increased our exposure to large cap funds.

Also read: Sensex gains 8,000 points in 1 month, Nifty 50 exceeds 24,400; is the Indian stock market overheating? A deep correction in sight?

How do you see the dynamics of growth and inflation evolving from here? Is the worst behind us as far as inflation is concerned?

Government investments have boosted India’s economic growth despite a challenging global economic environment.

However, weak growth in the rural economy and moderate growth in private consumption have been major constraints.

The good news is that inflation has come down significantly, demonstrating the ability of the central bank (RBI) to manage growth and price stability.

However, a new budget filled with populist giveaways could revive inflation concerns.

Also read: What are the causes of the IPO boom in India? Why are experts worried about the investor frenzy?

When do you think the Fed and RBI will start cutting rates?

According to the Fed’s dot plot, 15 out of 19 officials expect interest rates to be cut this year.

This analysis reveals how policymakers are responding to the data. We expect at least one rate cut from the Fed in 2024, and the RBI is likely to follow suit.

Domestic retail investors have recently emerged as a formidable force in the Indian market. How do you see this development?

The rise of domestic retail investors is a major positive development for the stock market in the long term. It has brought depth and stability to stock markets.

Conversely, some less experienced investors may be inclined to react to market volatility and end up panic selling.

Given India’s strong growth prospects, some smart investors have seized the opportunity presented by these volatile periods and invested strategically.

Also read: Expert View: Market outlook is good; positive for manufacturing, capital goods, exports, says Dikshit Mittal of LIC MF

Is the optimism about the small and mid-cap sectors overblown? What should be our strategy for these segments of the market?

Current index-level valuations indicate that optimism toward mid- and small-cap stocks is likely excessive.

If you are considering investing based on past performance, proceed with caution.

It is also an opportune time to book profits and capitalize on the strong recovery we have seen.

Investors should reassess their market capitalization allocation and consider reducing their exposure to mid- and small-cap stocks, depending on their risk appetite.

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Disclaimer: The opinions and recommendations above are those of the expert, not Mint. We advise investors to consult certified experts before making any investment decisions.