As the Middle East conflict drags on, Harsha Upadhyaya, the President and Chief Investment Officer of Equity at Kotak Mahindra Asset Management Company, elaborated on decent portfolios for an investor under current circumstances.
Speaking to NDTV Profit, Upadhyaya said that his view has shifted toward favouring a mix of mid-caps and large-caps, whereas a couple of quarters ago the preference was largely restricted to large-caps.
"Any portfolio having any combination of large caps and mid caps should be a decent portfolio at this point of time," he said.
"Earlier, there was limited comfort in extending exposure beyond large-cap companies. However, mid-cap valuations have since moderated and are now broadly aligned with their 10-year averages. In this context, a portfolio combining both large-cap and mid-cap exposure appears to be a reasonable approach at present," Upadhyaya added.
He noted that large caps are trading at a better valuation as compared to mid caps compared to their own history as well as on a relative basis.
"However, the expected earnings growth assuming the crisis ends shortly, we should see higher earnings growth for mid caps as as against large caps. So, to that extent maybe a slight premium on mid-cap portfolio or mid-cap stocks is a reasonable valuation zone," Upadhyaya said.
What sectors to look for?
Upadhyaya advised to opt for diversified sectoral approach. Noting that the banking and financials have been one of the largest weights in the index, , will likely need to participate meaningfully for the broader market to move higher. At the same time, some of the headwinds that weighed on the sector in the past may not persist going forward.
"For example, last year we did see 125 basis points of interest rate cuts which impacted net interest margins for most of the banks. That's unlikely to continue," he said.
In addition, credit growth, which had remained relatively weak, has started to recover. With expectations of moderately higher inflation, nominal GDP growth is also likely to improve. As a result, overall system-level credit growth could gradually move higher.
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"Both growth and and margin should be fine for banks and if crisis ends soon, I don't think that will lead to any asset quality issues as well. So, that's one of the segments," he said.
In addition to banking, Upadhyay gave an overweight coverage in the chemicals sectors. "We are also positive on some of the sectors which are not at all impacted by the war or the blockage that has continued, for example telecom, power etc. So I think there are quite a bit of sectors that you can really choose and place your bets on a diversified basis of this point of time."
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