'Lower mid and small cap exposure to 25-35%'

Fund managers and investment advisors are recommending investors to book profits in their mid- and small- cap share portfolios following the sharp rally in prices. Investors should restrict exposure to these stocks to about 25-35% of their total portfolio, they said. Mid-caps appear better valued than small-caps at this juncture, said fund managers.“Once should avoid small and micro caps at this juncture,” said Neelesh Surana, CIO, Mirae Asset Management.Mid- and small-cap stocks have risen sharply over the last one year. The Nifty Small cap 250 is up 105% in the past one year, the Nifty Midcap 150 is up 79% while the Nifty 50 has gained 50%.Surana prefers mid-cap stocks over small-caps but said money allocation to this segment should be restricted to one- fourth or one-third of the portfolio.The run-up in the share prices have made valuations of smaller companies expensive compared to their larger peers. The Nifty 50, comprising large-cap stocks, trades at a PE (Price to Earnings) ratio of 27.31 times. In comparison, the Nifty Midcap 150 trades at a PE ratio of 35.3 times and Nifty Small Cap 50 trades at 38.65.“Mid- and small-cap valuations are at a premium to large-cap peers and they would need a strong earnings cycle to drive gains hereon," said Taher Badshah, chief investment officer, Invesco Mutual Fund. "While mid- and small-caps have performed considerably well over the past 12 months, 40% of midcaps are still presently trading below their five-year average PE multiples compared to 25% in the prior peak of 2018.”The rally in small- and mid-cap stocks have been driven by demand from individual investors, deprived of better returns from other traditional asset classes. Investment advisors said once the bull run in these share categories end, the action will shift back to the large-caps.“With no discount available in mid- and small-caps vis a vis large-caps, there is lower comfort in holding the same,” said Vishal Dhawan, founder, Plan Ahead Wealth Advisors. “Investors should hold 25-30% of portfolio in mid- and small-cap funds and reallocate to large-cap or international funds.”Investors should avoid making lump sum investments in small-cap shares at this juncture, they said. “After the sharp run up in the markets, there is no easy money to be made. Avoid allocating lump sum to the small-cap space now,” said Vineet Nanda, founder, SIFT Capital.

from Economic Times https://ift.tt/2WQTW3X