Certain small and mid-cap stocks can outperform, say experts

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While other equity markets worldwide are experiencing turbulence, the Indian equities markets continue their current run of positive performance. The overall level of net FII flows has been positive, and foreign institutional investors (FIIs) have been net purchasers of Indian shares to the tune of $7.5 billion.

Even though Indian markets remain fairly valued relative to global valuations, FII is investing in the Indian market because it stands out among emerging economies.

Additionally, domestic investors continue to invest heavily in Indian equities. Medium-term valuation increases may be supported by robust Indian growth. The corporate commentary, tax collections, and consumer data all indicate a robust fiscal year 2024.

“We are at a critical juncture as far as the equity market and investments are concerned. Largely we believe that international developments will have limited implications on the Indian markets, barring a spike in crude oil prices. Recently, Indian markets have shown little to no implications of the movements in US equities. We expect lower double-digit growth for the Indian market in FY24, provided there are no major negative surprises,” said Joseph K Thomas, Head of Research, Emkay Wealth Management.

What should investors do?

It is true that to generate superior returns, all three primary asset classes are in play: equities, fixed income, and gold.  In the current environment, Emkay Wealth Management believes investors should stick to dynamic asset allocation for large portfolios. One should stick to the risk profile-driven fundamental asset allocation for smaller portfolios.

However, a selective allocation within these asset classes can generate superior returns. According to Emkay wealth management, certain small and mid-cap stocks can outperform as the valuation disparity with larger peers narrows.

Going forward Markets are anticipated to be influenced by US and Indian inflation, domestic and international flows, and the trajectory of corporate earnings. Other things to watch out for are the progress of the monsoon, the output of the Kharif crop, and the recovery in rural India.

“Monsoon are off to a weak start in June (-37% below normal). However, it’s still early days and July rainfall and the distribution will be more important to track,” said Shibani Sircar Kurian, Senior EVP & Head- of Equity Research, Kotak Mahindra Asset Management Company