Will largecaps continue to outperform in 2014?

Thu, 26 Dec Pre-Open

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It was last year that fund manager Mark Mobius said that he expected the year 2013 to be a good year for stocks. His reasoning for the same was the excessive money printing plan by all the major central banks.

So let's see how his call went. In the year till date, the BSE-Sensex has gained by about 8.5% while the BSE-500 Index is up by about 2.5%. Clearly, the frontline stocks were in favour. Especially when compared to the smaller companies. The BSE-Midcap index is down by about 7%, while the BSE-Smallcap is down by about 13% in the year till date. Clearly, the blue chips have stolen the show.

For the coming year, Mr Mobius is again positive on stocks, but those from emerging markets. As such, there is not much of a change in his stance as compared to last year. With the health of the emerging market economies getting better and their growth rates being way faster than their developed counterparts, they are likely to attract money from investors, believes Mr Mobius.

However, his first choice is China, followed by India. Discussing his views on the Indian political scene, he expects the new party to bring about some much needed changes. And as such, things are likely to improve from here on. Especially going by what some of the policies that the ‘likely to win parties' have been promised to bring in!

On the hot money topic, Mr Mobius believes that it is priced in. Also, the fact that apart from the US, money printing is happening in other parts of the world will need to be considered. In another recent interview, Mr Mobius opined that it is only when the central banks begin to sell assets on their balance sheets, is when one should start worrying. But by the looks of it, it is unlikely to happen anytime soon.

Well… considering that the elections are still a while away, markets are expected to remain quite volatile and will move rapidly as and when more developments take place. Foreign investors have been increasing their interest in India in recent times, and this has led to a sharp increase in prices and in the process, valuations.

While it is sensible for investors to stick with the quality players during times of uncertainty, buying such companies at fair valuations will seem a challenge in the current scenario. It may be in such times that one's patience level will be tested. Alternatively, considering the mid and smaller sized companies are trading at attractive valuations, investors can consider looking at good quality smaller companies. However, we believe that investors should not overexpose themselves to a particular stock and must view our suggested asset allocation page.