Small and midcap indices have outperformed large caps in recent years, leading to higher long-term CAGR. However, this trend may not be accurate due to the interplay between industry characteristics, growth potential, valuations, and prospective returns. Small and midcaps are typically in small and mature industries, while largecaps are in large and mature industries.
Hiren Ved says: In relative terms, India is better placed. Our macros have never been that good. And India Inc s balance sheets are de-levered. Earnings capacity has come back. So why should we trade at a discount? I mean, there is no reason to do that. From a three to five year perspective, I think we are fair, we are not at a premium.”
Nirav Karkera says: “If you want to play on stocks which reflect on factors the government policies are focusing on and macros are in favour of, very good opportunities are available in the mid- and smallcap space and for most of these segments are almost absent in the large-cap space.”
In 2023, the Indian stock market initially faced a downtrend but later experienced a significant rally, with Nifty achieving an year-to-date return of +18%.
Any negative development on the political front or shifts in interest rate expectations could derail momentum in midcaps and smallcaps and lead to sharp corrections