Small-cap stocks trade at nearly twice Nifty 50 valuation, says VK Vijayakumar
AI Summary
The current valuation disparity between small-cap and large-cap stocks in India indicates a potential market correction on the horizon. Retail investors should be cautious, as the elevated valuations of small and mid-cap stocks may not be sustainable, especially if foreign institutional investors (FIIs) continue to withdraw. This scenario could lead to a reversion to mean, where large-cap stocks may become more attractive as their valuations align with growth prospects, particularly in sectors like banking and capital goods.
Small-cap stocks are trading at nearly twice the valuation of the Nifty 50, highlighting a sharp gap across market segments, while a sustained return of foreign institutional investors (FIIs) could be important for narrowing the valuation difference, VK Vijayakumar, Chief Investment Strategist of Geojit Investments, said in an interview with ANI.Vijayakumar said the Indian market is currently seeing an unusual difference in valuations between large-cap, mid-cap and small-cap stocks.According to him, the Nifty 50 is trading at a trailing price-to-earnings (PE) multiple of 19.7, compared with 29.9 for the Nifty Midcap 100 and around 34.4 for the Nifty 100 Smallcap index.
“This is a very important characteristic of the market in India now. There is a huge dichotomy in valuations,” Vijayakumar said.He added, “These kinds of variations or dichotomy in valuations are very rare. Normally, in a stable normal market, large caps will have a premium over mid-caps and mid-caps will have a premium over small caps. But now it is just the reverse,”.
Original Article
Published on Hindu BusinessLine
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