Veteran fund manager Prashant Jain believes that the beating of smallcap and midcap stocks may continue. He said that a long time-correction has come in large cap stocks. But, the troubles of small and medium stocks are not over. Jain is the Founder and CIO of 3P Investment Managers. He said these things on January 15 at the 14th annual AIBI conference.
The adjustment process has not been completed yet in the market
Jain said that due to the post-Covid boom, valuations of smallcap and midcap stocks had gone far ahead of their fundamentals. He also said that if we talk about the entire market, the adjustment process has not been completed yet. He said, “I believe that this space (midcap-smallcap) is still expensive. Therefore, both time and price correction can be seen in it.”
Nifty Smallcap 100 index fell 8% in the last six months
The Nifty Smallcap 100 index has fallen by more than 8 percent in the last 6 months. Jain believes that large cap stocks look more balanced. “Risk-reward is now favorable in large-cap stocks. Although they are not cheap right now, their valuations are fine,” he said. He said that the returns of major market indices may remain normal in the next 3 to 5 years.
Nifty returns can be 11-12 percent in 3 to 5 years
He said that if we talk about three to five years, then Nifty returns can be initial double digit i.e. 11-12 percent. He said poor returns over a long period of time is going to test the patience of investors. He said, “If you do not earn profits for five years, then you can be very disappointed. Its impact can be seen on investments.”
Entry of new investors into the market contributed to the rise in valuation.
He said that the main reason for increase in valuation is the entry of new investors in the market. These came into the market after Covid. He said, “If you look at the number of demat accounts, 70-80 percent of demat accounts have been opened after Covid. These investors are not aware of the market cycle before Covid. Many new investors believe that the returns they have received in the last five years will continue to be the same in future also.”
Margin will not increase much due to competition in the market place
Regarding GDP, Jain said that there is little hope that nominal GDP will remain at 11-12 percent continuously. However, competition among industries is increasing. A lot of capital is coming from private equity and primary markets. This means that competition will increase in the market place. This means that there is very limited scope for margin growth in any sector.
Investors should not run after listing gains in IPO
Regarding investors’ craze regarding IPO, he said that investors should not run after listing gains and short term gains. You should invest in IPOs in the same way as you invest in the secondary market. He said, “You should not have the fear of missing out (FOMO) in the IPO market. Investors are always at a loss in terms of information in the case of primary issues. Therefore, they should focus on the sustainability of the business and the right valuation.”