ICICI Prudential Mutual Fund will opt for small cap stocks available at attractive valuations, instead of increasing allocation to a handful of quality stocks that have driven the market rally over the last one year.
At a press conference in Mumbai, S Naren, Executive Director and Chief Investment Officer, ICICI Prudential MF said that small caps stocks would deliver good returns over the next 3-5 years.
He said that the recent uptick in market was due to rally in handful of large cap stocks. As a result, these stocks have become expensive while the small cap space offers attractive valuation.
With this polarisation among stocks, a moot point among market participants is whether to invest in the same 10-20 stocks that have led the rally or bet on the other stocks available at attractive valuations, he added.
Naren further said, “Small cap space makes sense when its contribution to overall market capitalization is around 10%. Currently, small cap space account for 10.5% of the overall market capitalization. On the other hand, if such a contribution to market cap goes up to 15%, it is a strong sell signal.”
Moreover, the fact that credit growth is at record low makes a strong case for investing in riskier assets like small cap stocks, Naren further said.
Last week, a report by AXIS MF also suggested that the stars of last year may not necessarily be the winners this time. The report said that companies that have rebuilt themselves amidst market forces and have the ability to give strong earnings could be the leaders in 2020.
