Mid, Small-Cap Stocks Set For Further Downturn, Says Motilal Oswal’s Raamdeo Agrawal

The mid-cap and small-cap stocks could face more correction in the near future since much of the previous gains in these stocks were unsustainable and that valuations in these segments had become excessive.

That's the word coming from Raamdeo Agrawal, chairman and co-founder at Motilal Oswal Financial Services Ltd., who believes that market conditions are now stock-specific rather than sector or index-driven.

“There were excesses in the valuations of mid and small caps and some part of it has already phased out. The fall has been gradual owing to DII flow. In valuation terms, what cannot be sustained will not sustain,” Agrawal said, during a televised interaction at the NDTV Profit Conclave in Mumbai on Tuesday.

The statement comes in the backdrop of the NSE Nifty Smallcap 100 Index and the NSE Nifty Midcap100 Index felling 23% and 18% from their peaks, respectively.

He further suggested that while some excess valuations have already been corrected, the recovery will depend on individual stock performances, rather than broader market trends.

On the banking sector, Agrawal highlighted that it has been particularly impacted by the slowdown in credit growth. He also notes that the introduction of the new tax regime could provide a boost to credit growth, which could play a pivotal role in driving consumption.

Furthermore on the banking sector, Agrawal pointed out that the investors are staying away due to muted commentary from banks. “Right now, the mood in the banking sector is very bad. Investors are staying away from banks as the commentary from banks is pretty muted,” he said.

Raamdeo Agarwal's Investment Tips | Watch