Largecaps to see change of guard in a yr: Shenoy | Economic Times

The results have not given the market much to cheer about, but then there is not much to be happy about either. Global cues are going to be the driver of the next step and locally nothing seems to impact the market’s both upside or downside, says Deepak Shenoy, Founder, Capital Mind. After the steep run, is it time for some consolidation for the market?Yes. In fact, the market has been consolidating for about two months now and the large caps recently showed signs of moving out into a newer zone because they made a new high last week but largely this 1-3% range is from this average that those stocks were moving. The results have not given the market much to cheer about, but then there is not much to be happy about either. Global cues are going to be the driver of the next step and locally nothing seems to impact the market’s both upside or downside. What about the midcap underperformance? Is it a reason to worry?The market has actually gone so widely in favour of midcaps and small caps that a correction is necessary just to breathe. The smallcaps are up 78% this year from January onwards and have now retraced a little bit. Midcaps are up more than 30% and the fact that they are correcting more than the large caps now is just a function of a little bit of a retracement of the mean. But going forward, their results, at least at the midcap level, could continue to be as good as they have been. Also there is going to be a change of guard among the large caps. Some of the new companies, some of them technology, some otherwise, will probably take over some of the older names in the Nifty in the next one year. So I am expecting a change of guard happening in the next 12 to 24 months. With retail investor participation being at a record high, the AMFI data prima facie looks spectacular. But there are certain devils in the details. When the retail investors come, party is over. But this time it is different.To be fair, retail investors have always been a very heavy part of the Indian markets. They used to account for nearly 33% in 2016 and now they make up 45% of daily volumes. However, retail participation is very low as a percentage of the actual holding. So it seems that retail participates but participates in the short term. They do not really hold their stocks. So we will look at non-promoter holdings in India. Nearly half of the non-promoters holdings in India are held by FIIs and if you add up the mutual funds and the insurance company holdings, retail holdings are relatively small in comparison. But they are the biggest players on the intraday circuit on the daily volumes measures and so on. So while they have been so large, the point that they account for 45% is a matter of a little bit of fear. But since January or February this year, they have been a considerable part of the market and it has only gone up since then. So the fact that it will come down at some point is almost natural. Markets do correct. The problem is predicting when. So I do not want to make that prediction right now. I think it is better to react. The market seems to be correcting a little bit at least on the midcap and small cap front. Let us wait and see if this becomes a decent 10% plus correction or whether the excitement or the markets having fallen, brings in even more retail into the market. Only time will tell but I can say it is not easy to predict this. For the next big up move, we are going to need some of those stocks which have been slugging it out to perform better. It could be Reliance Industries or the entire Bank Nifty. Would you concur with that move because right now one cannot say what the next trigger can be? Triggers are there but most are in the negative direction. So many IPOs coming. There is big enthusiasm for newer companies, not necessarily with the greatest of financial backgrounds or even profitability. The point over here is about whether the big guys will perform at some point. In the past, in 2007, they would say that the public sector needs to perform. It was the worst performing sector right through that massive rally in 2007. They were very big companies in the index also at that time. Even now, they have not performed anywhere close to how many of the private banks have performed, which have performed less than the IT companies, which have performed less than the chemical companies and so on. Reliance, L&T, the auto majors have been laggards. I do not know whether they will participate but I do know that the index weight is right now not going to go up tremendously unless some of these names come in. Midcaps, which do not have such a heavy concentration on some of these large and diversified companies, tend to go up. The midcap index tends to go up and I expect the midcap indices to be more volatile perhaps both upside and downside. But the broad index will just be slowly chugging along and if anything, there is more risk on the downside here.