In periods of heightened market volatility, many experts recommend focusing on large-cap stocks as safer investment options compared to the riskier small- and mid-cap segments. The latest survey reinforces this viewpoint, highlighting a significant preference for large-cap investments among market participants. For those looking to invest in stocks, understanding the market volatility in the Indian market currently is vital.
According to a recent market poll, a striking 76% of respondents expressed a preference for large-cap stocks, while only 24% showed interest in small- or mid-cap equities. This trend is noteworthy as it reflects a cautious sentiment among investors in light of current market conditions. Many experts are concerned that the Indian markets are currently "expensive," predicting a possible correction of up to 10%. Some analysts even foresee declines as steep as 20%, especially since the Sensex and Nifty indices have already dropped nearly 5% from their recent peaks.
Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, believes that the recent downturn in Indian equities has rendered large-cap stocks more attractive. He points out that these stocks provide greater stability and a safety margin, which are essential during volatile periods. Consequently, investors tend to gravitate towards large-cap stocks over their mid- and small-cap counterparts in such turbulent environments.
Despite this preference, Bathini notes that selective opportunities remain available in the mid and small-cap sectors. However, he advises that these require a more cautious approach due to their higher volatility and specific risks associated with individual stocks.
Since September 26, both the Sensex and Nifty have experienced declines exceeding 4.5%, while broader indices, such as the BSE MidCap and BSE SmallCap, have fallen by over 2.7% and 1.8%, respectively. This downward trend in the broader market emphasises the need for investors to exercise prudence in their decisions, particularly when considering mid- and small-cap investments.
Nirav Karkera, Head of Research at Fisdom, has pointed out that large-cap stocks are currently positioned more favourably compared to their smaller counterparts. He attributes this to concerns regarding the "China+1" strategy, which has recently come under scrutiny following China's stimulus measures.
The potential for a sustained recovery in China's economy raises fears that certain operations might shift back to China from India. In light of these uncertainties, high-quality stocks, predominantly found in the large-cap segment, are expected to remain appealing in the Indian market.
Ongoing geopolitical tensions, particularly in the Middle East, further complicate the investment landscape for riskier assets such as Indian equities. Investors are increasingly wary not just about rising oil prices but also about how these tensions may impact trade dynamics and foreign investment flows.
Given these considerations, many investors are likely to prioritise liquidity, a characteristic more readily associated with large-cap stocks. Karkera explains that the combination of favourable valuations, economic uncertainties, and liquidity considerations reinforces the argument for focusing on large-cap stocks in the current market environment.
In conclusion, the overwhelming preference for large-cap stocks reflects a broader strategy among investors to safeguard their portfolios during uncertain times. While opportunities still exist within the mid-and small-cap segments, the inherent risks and volatility make large-cap stocks a more appealing option for those looking to invest in stocks. As market dynamics continue to evolve, staying informed about these trends will be crucial for making sound investment decisions.
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