Major Large-Cap Stocks Show NO Returns Over the Past 2-3 Years

Indian mega-cap stocks are currently experiencing a bear market, with many top large-cap stocks showing minimal returns over the past 2-3 years, according to a recent report by Kotak Institutional Equities. The report emphasizes that the performance of distinct markets in India for the first half of 2024 will likely be influenced by various upcoming events.

The report outlines the market dynamics, stating that mega-cap stocks are in a bear market, large-caps and quality mid-caps are in a bull market, while mid- and small-caps are generally in a bubble market. Kotak Institutional Equities favors mega-cap stocks due to their reasonable valuations and anticipates lower returns for the broader market.

“We expect large-cap stocks to outperform mid-cap and small-cap stocks over the next 6-12 months, assuming that the current euphoria in mid-cap and small-cap stocks subsides, aligning their valuations with fundamentals,” the report notes. It highlights the reasonable valuations of large-cap stocks compared to their mid-cap and small-cap counterparts in the same sector.

Sectors with a higher proportion of large-cap stocks have lagged behind those with a greater concentration of mid-cap and small-cap stocks, contributing to varied sectoral performance. The report attributes this market inconsistency to the diverse investment sentiments of market participants.

Institutional investors, particularly foreign investors, known for investing in large-cap and quality mid-cap stocks, have been conservative due to rich valuations in the Indian market. On the other hand, retail and high net worth individuals, who often invest in mid-cap and small-cap stocks, show enthusiasm despite rich valuations.

The report cautions against the meteoric rise in the stock prices of many mid-cap and small-cap stocks in recent months, attributing it to exuberant market sentiment rather than significant changes in sector fundamentals. Despite the cautious approach of institutional investors, retail participants continue to pour money into mid-cap and small-cap funds, driven by strong performance and elevated return expectations.

The Kotak report underscores the importance of closely monitoring market dynamics and suggests that the upcoming months will play a crucial role in determining the trajectory of India’s diverse stock markets.