S Krishna Kumar, Chief Investment Officer for Equity at Sundaram Mutual Fund believes the underperformance of midcaps and smallcaps will correct itself in the next 12 months.
“So we should position ourselves more there,” he said in an interview with CNBC-TV18.
“To a large extent, most of the negativity is behind us. We should continue to build on the equity end of the asset allocation. The rally is more into the largecaps given the liquidity that comes through,” he added.
“Slowly the midcaps and smallcaps will enjoy further run, it is going to be very good time for midcaps and smallcaps in the next two years,” Kumar said.
“Most of the uncertainties are now well behind us. From the domestic economy perspective, we seem to have come back to pre COVID-19 levels except a few high-intensive sectors of multiplexes or airlines which will come back in next quarter or so,” he said.
“Globally the uncertainty of the US election is behind us, the Fed has reiterated its stance to keep liquidity going for a couple of years and first signs of rate hike would be a year away,” he added.
On banking and financial stocks, he said, “Banking space, the small finance banks, the non-banking financial companies (NBFCs) have had a terrible run in the previous two years, so they are all catching up with the kind of liquidity that is available. That is a big area of financials that we would be positive on to add.”
“We are seeing a big thrust from the government on the housing space, so housing finance companies (HFCs), the building material space would be very good plays to play the next three-four years in the midcap and smallcap space,” he said.
According to him, two-wheeler plays would consolidate as they had a very good run. “I would think that incrementally a lot of the ancillaries which benefit from either a two-wheeler recovery or passenger car recovery is a place to be in now. You need to allocate more towards the auto ancillaries which have a multiple set of drivers at this point of time,” he said.
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