Many smallcap and midcap equities appear overvalued, and a few brokerages say investors aged 20-30 with a moderate risk appetite should invest roughly 50-60% of their incremental investments in large cap stocks in 2024. Analysts recommend that investors spend Rs 50,000-Rs 60,000 in large cap companies and the rest in midcap and smallcap firms out of a Rs 1 lakh investment.
The Nifty Midcap100 index trades at a 35% premium to its average valuations at 27 times one-year forward PE, compared to a less than 20% premium for the Nifty. According to Jefferies, this renders small and midcap equities vulnerable to a strong sell-off.
Arpit Jain, Joint MD at Arihant Capital Markets, stated that as someone in his 20s-30s with a moderate appetite for risk, he would invest 60% in large cap stocks and 40% in midcap and small cap firms, allowing his portfolio to create good returns.
"As a young investor, one can afford to take slightly higher risk, and investing 60 per cent in large cap gives an investor the cushion to take some risk into high growth companies," Jain went on to say.
According to Deven Mehta, Equity Research Analyst at Choice Broking, investors aged 20-30 with a moderate risk appetite should consider a 2024 strategic allocation. According to Mehta, investing 50% in largecap equities, 30% in midcap stocks, and the remaining 20% in smallcap stocks is a wise strategy.
"This allocation is grounded in the observed performance trends of 2023, where midcap and smallcap stocks delivered remarkable returns and that the risk-reward ratio appears more favourable for large cap stocks."
According to Shrikant Chouhan, Head of Equity Research at Kotak Securities, largecap and megacap stocks will beat midcap and smallcap stocks in 2024. He expects midcap companies to outperform smallcaps in terms of earnings growth. According to Chouhan, smallcap stocks appear to be the most expensive when compared to their profits growth potential. He stated that his investing mandate is to invest a minimum of 50% in large caps, 30% in midcaps, and 20% in small caps, regardless of market conditions, to achieve optimal returns.
Tanvi Kanchan, Head of Corporate Strategy at Anand Rathi Shares & Stock Brokers, believes that an asset allocation strategy with a well-diversified portfolio is the key to controlling risk and guaranteeing minimum deviation from the desired outcome.
"Everyone's risk-taking abilities vary, and there are various methods for measuring risk tolerance." Investors must comprehend the entire risk of the asset allocation strategy. "A moderate investor with a long-term view on the market can consider allocating 50% to largecap, 20% to midcap, and the remaining 30% to small caps," Kanchan said.
Sunil Nyati, Managing Director of Swastika Investmart, stated that large cap stocks are regaining momentum following a period of underperformance, giving a favorable opportunity for investors, particularly if foreign institutional investments in the local market increase.
"I recommend keeping a 50% allocation in largecap names to take advantage of potential positive shifts in this segment." However, given the projected political stability, potential interest rate decreases, and sustained economic growth, it is critical not to neglect the chances in the midcap and smallcap space. "I recommend allocating 30% of your portfolio to midcap stocks to ensure a well-rounded and diverse portfolio," Nyati added. A 20% allocation to smallcap stocks complements this strategy, providing the opportunity to capitalise on developing opportunities in a volatile market environment, he noted.
