MFs sound caution on ‘excessive’ valuations in mid & small-caps

The share of mid-cap and small-cap companies in India’s total market value hit the highest level in May, boosted by the unabated appetite for these shares among domestic investors. This, however, warrants caution, said fund managers, who warned that the sharp run-up in these shares may be excessive for now.

ICICI Prudential Mutual Fund, the share of mid- and small-cap stocks to the country’s total market capitalisation was at 36.3% in May, compared to 25% in Dec 2020 and 19.6% in Dec 2013. Meanwhile, the contribution of the large caps declined to 63.7% in May, compared to 74.2% in December 2020 and 80.3% in December 2013.

ETMarkets.com
“We are observing excessive valuations in this segment, which raises concerns about potential returns relative to the risks involved,” says Anish Tawakley, co-CIO equity, ICICI Prudential AMC. “We believe the current risk-return trade-off in the small- and mid-cap space is not attractive.”