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How Macro Concerns Are Adding To The Woes Of Small And Mid Caps

It’ll be difficult at this juncture for mid and small caps to have bigger participation in market rally: Axis Mutual Fund’s Gopani

A baby sea turtle is released at a demonstration for the reduction of emissions during the 13th conference of the United Nations Framework Convention on Climate Change (UNFCCC), in Bali, Indonesia. (Photographer: Dimas Ardian/Bloomberg News)
A baby sea turtle is released at a demonstration for the reduction of emissions during the 13th conference of the United Nations Framework Convention on Climate Change (UNFCCC), in Bali, Indonesia. (Photographer: Dimas Ardian/Bloomberg News)

The small- and mid-cap companies may face difficulty in contributing to the rally in Indian market unless the macroeconomic situation improves, according to Jinesh Gopani, head of equities at Axis Mutual Fund.

In the last 12-18 months, the macro has weakened as oil prices rose and consumption slowed, Gopani told BloombergQuint. The liquidity crisis among non-bank lenders only added to the woes. He said the global cues such as trade tension between China and the U.S. and the rising oil prices would prolong the volatility in the market.

“We need to be cautious on the micro side, which is the mid and small caps, until macros improve substantially,” he said.

Though some stocks may continue to do well, Gopani said broadly it’ll be a challenge at this juncture for mid and small caps to really have a bigger participation in the [market] rally, if there is a big rally.

Banks And The NBFC Crisis

Gopani said banks do not have a higher exposure to the non-bank financial companies. “It’s not as big an issue to rattle the profitability of the banks.”

But it would be important for the new government and the Reserve Bank of India to bring back the investor confidence in the sector, he said.

Key Highlights:

  • After IL&FS, tier II, III and IV NBFCs are facing business-model issues.
  • Favours multi caps as a good strategy.
  • Expects a bounce back in the auto sector after at least the first quarter of FY20.
  • Auto sector is a classic gross domestic product multiplier.
  • Waiting for private capex to revive.
  • Expects strong inflows in India, should election verdict be in line with exit polls.
  • China trade tensions to contribute to higher India inflows.
  • Many overseas funds still underweight on India.
  • July budget critical to boost the slow economy.

Watch the full interview here: