Quality midcaps will come back: Nilesh Shah, Kotak AMC

This is a market of stock selectors. You have to bear the volatility, Nilesh Shah, MD, Kotak AMC, tells ET Now. 

Markets are at an all-time high but no one is feeling excited largely because mid and smallcap stocks are not leaving too many people satisfied with the market action even though Nifty is at a record high?

Yes, this is the paradox of the market. People who have invested in mutual funds are reasonably content as the majority of mutual funds holding is in large-caps. There are many retail direct investors who have invested in small and midcap stocks, based on the momentum of small and midcap stocks delivering returns earlier. Of course, they are not happy. At the end of the day, this is a market of stock selectors. You have to bear the volatility. The way large-cap indices have scaled all-time high levels, at some point in future, the midcap and smallcap indices also will scale all-time high levels, driven by quality midcaps and not necessarily momentum midcaps.

If you look at the list of stocks that have really helped the markets higher in this journey over the last six months, you see a major chunk of financials, a bit of IT. TCS has held out, Infosys has gained about 14%. Then we have HUL, Asian Paints representing the consumption story. Has it really been about financials all the way?

There is a WhatsApp forward which is going on which says that it is the HRITHIK stocks which have pulled the Nifty up. That includes HDFC, RIL, Infy, TCS, HUL, IndusInd and Kotak. Then there was someone else who put another WhatsApp on that, saying yes HRITHIK stocks have gone up but there are also ROSHAN (RCOM, ONGC, Suzlon, HCC, Aban, NTPC) stocks that have not gone up.

The market is made up of different stocks. Sometimes it could be HRITHIK, sometimes it could be ROSHAN but at the end of the day, large-cap stocks have scaled heights because they are quality companies. In the midcap space, we will see the quality midcaps come back at some point in time, not necessarily near term, cross their all-time highs. But for ROSHAN stocks, there could be a problem.

Source: Economic Times, July 27, 2018