A bronze bull statue stands at the entrance to the Bombay Stock Exchange (BSE) in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

This Rs 1.4-Lakh-Crore Asset Manager Expects Small And Mid Caps To Rebound In 2019

Kotak Mahindra Asset Management Company expects the first six months of 2019 to remain volatile and the beaten-down small and mid caps to stage a comeback.

“The markets witnessed a huge divergence among mid-, small- and large-cap stocks in the past 12 months. Whenever there is such a divergence, it moves back to the normal zone,” Harsha Upadhyaya, chief investment officer (equities) at Kotak Mahindra AMC, that manages funds worth more than Rs 1.4 lakh crore, told BloombergQuint in an interaction.

The NSE Nifty Midcap Index and the NSE Nifty Smallcap Index declined 15.4 percent and 29.1 percent, respectively, last year. That compares with a 3.15 percent gain in the benchmark NSE Nifty 50 Index during the period.

But while there are pockets of opportunities in the mid- and small-cap basket, Upadhyaya cautioned, investors have to be cautious while selecting the stocks. “The valuations have to be correct for small- and mid-cap stocks, which then will present a greater opportunity.”

Watch the full conversation here:

Key highlights from the conversation:

On stock market and macros:

  • Expects 2019 to be better than 2018.
  • Expects first half to be volatile as previous year.
  • Markets will start showing a lot of strength after elections.
  • Expects macro tailwinds to gather strengthen.

On earnings growth:

  • Expects corporate earnings to grow in high teens.
  • Expects third quarter to be disappointing because of high input costs and liquidity crunch among non-bank lenders.
  • Forecasts 18-20 percent earnings growth in FY20.
  • Financial sector to deliver strong growth in third and fourth quarters and in FY20 as well.
  • Expects IT sector and capital goods to deliver decent numbers.
  • Auto and telecom sectors are expected to see more pain.

On sector- wise performance:

  • Bullish on corporate-facing lenders. Expects the segment to see a revival in stock market performance.
  • Consumption companies are facing margin pressure and moderating demand.
  • Valuations for capital goods have corrected to 2002 levels.