This is a year when largecaps will give better returns unlike the earlier years when midcaps performed very well, said Andrew Holland, CEO, Avendus Cap Alternate Strategies.
The pain for the midcap and smallcaps is likely to be more brutal till the month end because a lot of Mutual Funds (MF) are realigning their portfolios due to market volatility and as such there are no takers for the midcaps and smallcaps. They have had a great run but are not worth chasing at the moment, said Holland.
He said that there was also worry that there could be some outflows from PMS funds which concentrate on small and midcaps. "So one will have to wait and see at the end of this carnage what looks attractive to buy. There will be no new flows into PMS funds until things settle down," he added.
According to him, in a scenario where the bond yields are rising, there is global volatility and stronger dollar, the best places to hide would be IT because it would be a beneficiary of weaker rupee. Private banks and FMCG companies are also seeing good growth.
With regards to PSU banks, he said although the worse seems to have been factored in, one is not sure how they will be able to repair the damage that has been done and how they can start doing real business.
Talking about earnings, he said they have not been so bad. "Unfortunately, everyone had very high expectations of earnings growth and that is being brought down from 25 to 20 percent. So there is risk for the earnings forecast to be brought down more, particularly with crude rising. However, the house is okay with a 15 percent earnings growth," said Holland.
When asked about the political risk for the market, he said the uncertainty of the ruling party being in dominant position could keep the market volatile over the next 12 months.