Midcap and smallcap stocks have seen sharp corrections in recent weeks, but Edelweiss Mutual Fund believes this is mainly profit booking and not a structural move towards largecaps. Fund Manager Dhruv Bhatia explained that valuations in midcaps have become more reasonable after the selloff, creating selective opportunities for investors. He emphasised that the correction is healthy and offers better entry points in quality businesses.
Largecaps, though attractive in valuation terms, continue to show muted growth compared to midcaps. Bhatia highlighted that crude oil prices remain the biggest risk for markets. If prices rise above 100 dollars per barrel, volatility could extend and foreign investor selling may increase. He advised investors to stay selective rather than shift entirely to largecaps.
Sectors like private banks, automobiles, auto ancillaries and healthcare remain strong picks. Passenger vehicles and auto component makers are expected to benefit from demand recovery. Healthcare and pharmaceuticals continue to offer medium term opportunities despite regulatory challenges. Bhatia stressed that earnings growth businesses should be prioritised over holding cash.
He concluded that stock selection will drive returns in the current environment. Investors should closely monitor quarterly earnings and global crude oil trends before increasing exposure. Domestic cyclical sectors are expected to remain attractive in the near term.
