ETMarkets Smart Talk: Why small & midcap stocks could consolidate in the near-term, Santosh Singh explains

In an interview with ETMarkets, Singh said: “The global scenario now looks much better than what it was a year back with the interest rates near their peak, inflation showing some signs of moderating, and a hard landing of the economies may not happen” Edited excerpts:
We are seeing some nervousness at record highs for Mr Market. How do you see things moving – have we hit the top for the moment?
Although the Nifty50 is closer to its all-time high, I don’t see a reason to be nervous. I think the global scenario now looks much better than what it was a year back with the interest rates near their peak, inflation showing some signs of moderating, and a hard landing of the economies may not happen.

India’s corporate earnings is also showing resilience, most of the earnings reported in the current result season have been ahead of the analyst’s expectations.

I have always believed that if the numbers are being delivered the market will also deliver.

Interestingly the US Fed is open for further rate hikes. Do you see that could dampen the bull’s party on D-Street?
The US Fed has made its policy decisions data dependent and they are in no hurry to reduce the rates, which in my opinion is the right thing to do from a long-term perspective if the past is anything to go by. I am not much worried about the markets.

Largecpas dominated the party on D-Street — do you think one should now look at going overweight on small & midcaps?
I would look at small-cap and mid-cap differently, mid-caps have compounded in mid-double digits over the last six years BSE small-cap 100 index suggests a single-digit compounding. Also, I see this segment to be a bottom-up stock pickers market.And hence, I would focus on stocks rather than the segment itself. Having said that, if we look at the ownership pattern of the market, mid and small-cap ownership seems to be at high. This may mean that the segment may see consolidation in the near term.

Commodity prices have bounced back. Do you think it could lead to a spike in inflation?
I don’t think there could be a significant impact due to this. Commodity price spikes are a regular phenomenon and they do not pose any structural problems.

What is your take on the earnings trajectory for the rest of 2023? What is your take on the management commentary? Does the consensus sound cautious just like the IT pack?
As I highlighted earlier the earnings trajectory is turning out to be better than expected and analysts are expecting high double-digit growth in Nifty EPS for FY24. Management has been sounding quite positive.

On IT companies most of the analysts we talk to sound cautious, to me this is a good sign as in a sector that is structurally high growth cautious times make for good stock picking.

Things which investors should avoid doing especially when the market is trading at record highs?
I have always felt that investors start going for the hottest thing in the market when the markets are trading at highs.

One should not lose focus on the fundamentals of the company and the valuations they are trading at. As we have seen in the past, the biggest mistakes are made in a market rally.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)