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Analysts of Kotak Institutional Equities said that the Indian market is concurrently in the bear, bull, and bubble phases. “We find much better value in the top large-cap stocks (most of the top 15-20 stocks by market cap) and expect them to outperform in the next 6-12 months, as the current euphoria in other large-cap, mid-cap, and small-cap stocks may fade over time and their valuations realign with their fundamentals,” Kotak said in its strategy report.
Analysts expect the large-cap laggards of 2022-23 to do better over the next 6-12 months. They noted that other large-cap and quality mid-cap stocks may see a period of time correction.
The data show that five out of the top-six stocks with a weight of 34 per cent in the Nifty-50 Index have delivered negative returns over the past two years, 22 stocks with a weight of 55 per cent in the Nifty-50 Index have given less than 10 per cent returns over the past two years. The Nifty-50 Index is up 9.8 per cent, the BSE Midcap Index is up 24 per cent and the BSE Smallcap Index is up 29 per cent over the past two years.
“We do not find much value in most of our mid-cap and small-cap coverage universe (150 stocks), given that most stocks are trading well above or near our 12-month fair values of the stocks,” the report said. It added that the better-quality stocks may see time correction, while plenty of lower-quality mid-and small-cap stocks could see large price or lengthy period of time correction.
The analysts have made minor changes to the recommended portfolio and have included Colgate Palmolive (CLGT) and Cummins India (KKC), with a weight of 150 bps each, and reduced positions in AXSB (35 bps to 7.2 per cent), MM (40 bps to 200 bps), and TTAN (60 bps to 150 bps). They have removed Samvardhana Motherson.
“The stock has delivered a 37 per cent return in the past six months and offers moderate upside to our 12-month Fair Value of ₹105. We continue to like the company’s fundamentals and long-term prospects, but we see near-term headwinds to global automobile volumes from global growth challenges,” the report said.
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