Over researched large-caps don't allow valuation asymmetry, according to Abhay Agarwal, founder at Piper Serica Pvt.
Equity investment comes with risks which cannot just be limited to large-caps or top Nifty 50 constituents, especially if investors are looking to make long-term money, Agarwal told BQ Prime's Niraj Shah.
He suggested looking at the listed mid and small caps for the long-term as their returns are driven by both expansion and earnings growth. Thematically, textiles and apparels export, small banks, and microfinance companies form a part of his investment radar.
He is also optimistic about HDFC Bank Ltd., and Reliance Industries Ltd. and suggested including them in the portfolio due to their stable returns and potential for further growth.
Agarwal, however, suggested staying invested in high-quality infrastructure developers rather than volatile smaller players.
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Most large-cap IT companies traditionally work on a time and material model which is staffed with projects and cheap resources, and make over 20% ebit margin, he said.
From a business point of view, this nature of functioning is a "threat", adding that these companies will take time to reorient themselves around artificial intelligence and human resources, he said. This, according to him, will lead companies to deliver single-digit growth against unjustified high valuations for a couple of years. Agarwal said it is better to stay out of the pocket for some time.
Piper Serica's Top Holdings:
South Indian Bank Ltd.
CMS Info Systems Ltd.
Spandana Spoorthy Financial Ltd.
Gokaldas Exports Ltd.
Apollo Pipes Ltd.
Apollo Hospitals Enterprise Ltd.
Watch the full interview here:
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