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Mid-cap will continue to display signs of instability

Nilanjan Dey

Kolkata , Oct. 2

THE obsession with mid-cap stocks may ease for the time being, but investors should not easily lose their faith if the companies concerned have good fundamentals and efficient business models, Mr Rajat Jain, CIO of Principal PNB Mutual Fund, told Business Line in an interview.


In the context of burgeoning mid- and small-cap stocks, many investors seemed to have overlooked the large-caps. Do you agree?

Many of the retail investors have taken to these counters in a big way, driven as they have been by their strong price spirals. This is evident from what we have seen in the recent past. A number of mid-cap stocks have moved up handsomely, some have actually vaulted high in a short span of time. That must have guided a section of the market, including the smaller players.

However, this is not to say that investors have ignored the large-cap names altogether. It seems that large investors, particularly the institutional kind, have been substantially responsible for activity on the large-cap front.

To what extent are Principal's existing equity funds currently invested in large-caps?

Well, we have about 50-60 per cent in large-cap stocks, with some allocation to the mid-cap segment. The break-up, of course, will depend on the fund that is being talked about.

Let me tell you that there is no exposure to small-cap counters.

The portfolio of our Resurgent India Equity, for instance, is practically a blend of large- and mid-cap.

What I mean is that each allocation will be a function of the investment strategy that is being employed. We are now bringing out a new fund that will invest in strong companies with large market capitalisation.

In which sectors you over- or under-invested at the moment? What sorts of changes are likely in these allocations in the near future?

We are comfortable with some sectors more than others. Having said that, let me say that we have a decent exposure to areas like capital goods, construction and consumer goods.

As for your query on being under-invested, we have a relatively low exposure to pharmaceuticals and textiles. These, incidentally, are low when compared to the benchmarks. We are somewhat under-invested when it comes to software, again when seen against the benchmark. However, this is not to suggest that we do not like software. As at this moment, nevertheless, we are going a bit slow on this front.

Mind you, it is not possible to indicate the kind of changes that may be made in the broad allocations. That, as you will appreciate, will depend on valuations and other factors. These are quite fluid and will change from time to time. Allocation patterns will be revised accordingly.

Would you say that mid-cap counters would mostly be volatile, prone to greater risks?

Yes, most definitely. Mid-cap will continue to display signs of instability. Investors will have to constantly monitor the stocks they have entered.

As far as we are concerned, our team is comfortable with its mid-cap investments at this juncture. We will not be overly concerned with volatility if there are no worries with regard to other important factors. If the quality of an asset does not concern us, if its fundamentals are all right, if the business of the company is not facing problems, volatility of prices should not be given undue importance.

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