At present, the eyes of investors are on large cap stocks, whereas some time ago, there was a crowd of investors in small-medium stocks with high risk. In a volatile and uncertain market, investors are now turning to large cap companies. This in itself is no surprise. This is only natural in the current geopolitical situation and rising inflation.
Nitit Master of Axis Security It says that in the current situation, largecap shares are looking comparatively more safe. Apart from this, in the recent few days, FIIs have sold heavily in large caps, due to which many bluechip stocks are currently getting better valuations than small-cap stocks.
In such a situation, it is natural for money to flow from mid and small caps to large caps. Experts say that the pricing power of large cap companies is very strong and their management is also very good. In such a situation, these companies are more able to deal with inflationary pressures due to increase in cost of production. Apart from this, small and midcap companies tend to underperform as compared to large cap companies in times of interest rate hikes.
Edelweiss Securities It is said that now the central bank may be seen increasing the interest rate to deal with inflation. In such a situation, the impact of this pressure of interest rate hike is likely to be more on comparatively small and medium companies. In such a situation, the market expects that in the coming times, the performance of small and mid-cap companies may remain weak in comparison to large cap companies.
It is worth noting that for the first time since 2018, the US Fed raised its interest rates by 0.25 percent on Wednesday. The Fed has also indicated that interest rates can be increased six more times this year. Taking a look at the past history, during the tough market periods of 2010-2013 and 2018-19, the investor trend was more towards largecap and structural stocks, while midcap, smallcap and cyclical stocks were seen under pressure during this period.
Nishit Master says that largecap companies are comparatively less leveraged and their ability to raise equity capital is higher than small and midcap companies. In such a situation, when there are signs of increase in interest rates across the world, then we expect the performance of largecap companies to be better than small-medium stocks. At least it will be so in the first half of FY2023.
The Nifty has slipped nearly half a percent so far in this calendar year. On the contrary, Nifty Midcap 100 and Nifty Smallcap 100 have seen a decline of 5 and 9 per cent respectively. If we look at the last year, Nifty Midcap and Smallcap have seen a rise of 46 per cent and 60 per cent respectively while Nifty 50 has gained only 24 per cent in the same period.
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Not only in India but all over the world, at this time large cap shares have become the favorite of investors. The latest survey by BofA Securities shows that at present, around 61 per cent investors believe that largecaps will outperform mid and smallcaps going forward.
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