Mid and small-caps are likely to outperform large-caps in the coming year too, says Divam Sharma of Green Portfolio PMS

Divam Sharma, Founder and Fund Manager at Green Portfolio PMS, likes small and mid-cap stocks. Sharma said that they have shown great performance in 2024, and with investor enthusiasm about the small-cap space staying high, they should outperform large-caps in the coming year, too.

He further believes that the markets are in a good position for new investments as valuation froth isn't there anymore. The markets are consolidating after the bull runs, as expected, and we have spotted many good opportunities and are deploying cash, he said.

Overall, he is closely tracking auto, defence, pharma, telecom, and a couple of other sectors which we believe will perform well in the coming year. Edited Excerpts:

How do you expect markets to perform in the next 12 months - bull market, bear market or a market which will remain sideways?

The first half of 2024 saw a good bull run. The markets are in a good position for new investments right now as we don't see valuation froth anymore. The markets are consolidating after the bull runs as expected, and we have spotted many good opportunities and are deploying cash. Now is a good time to park your dry powder. Hereon, we’re expecting to see a positive trajectory for the markets for the next couple of quarters.

Has your year-end target for 2024 changed? What is it now?

We don’t have a short-term horizon like 12 months in view. The fund and our investors invest for longer time horizons like 3-5 years. We believe in investing for longer durations of time and that means we don’t have strictly set yearly targets.

This earnings season we saw more downgrades than upgrades. When do you see this situation reversing?

We expect the situation to reverse in a couple of quarters. We have seen good growth numbers recently but now we are seeing an earnings plateau. From here, it will take some time for the numbers to consolidate as the broader economy is also starting to plateau in terms of consumption.

What is your view of the banking space? Do you prefer private banks, PSU banks, or NBFCs?

We don’t invest in PSUs, we prefer private banks instead. We might see the banking sector under pressure over the coming quarters, as consumption is slowing down. We might see a slowdown since bank NIMs currently are large but they will cool down as the central bank is expected to cut rates in 2025.

What lessons did you learn from 2024?

2024 has shown us markets at the peak of the bull run and we’ve seen flash crashes that wiped out huge amounts of funds from equities. However, the fundamentals of the companies we invest in stay rock solid. This has taught us the importance of having patience during turbulent times and keeping belief in your investments intact. Patience and discipline are the way to go about when investing in equities.

What challenges do you see in 2025?

Any escalation in geopolitical tensions is one of the risks to which the markets are exposed. For some sectors like IT and pharmaceuticals, Trump’s policies in the US could be a decisive factor in their performance.

After the recent correction, which sectors remain on your wishlist and which ones have you let go?

We are mostly sector-agnostic except for a couple of sectors that we particularly like. We invest in stock stories even in our sectoral portfolios. However, we are closely tracking auto, defence, pharma, telecom, and a couple of other sectors which we believe will perform well in the coming year.

What is your view of mid-caps and small-caps? Will the outperformance continue next year?

We like the small and mid-cap space. They have shown great performance in 2024 and with the investor enthusiasm about the small-cap space staying high, they should outperform large-caps in the coming year too. We are bullish about the small, mid, and even the micro-cap space.

When do you see FII inflows returning to India? What will impact it the most?

FIIs have been net sellers month over month. This is driven by China's stimulus, geopolitical tensions across the globe, and US elections. We have gotten some clarity after Trump’s win, and Trump is favourable to India. As Trump takes positions and brings up policies in Q1CY25, FIIs are expected to gain confidence and return to emerging markets like India.

One piece of advice for new investors.

Try not to time the markets and invest with discipline and patience. Equity markets are known to test patience with bull and bear runs and new investors who’ve entered the market during the bull run need to understand that crashes are a big part of market dynamics too. The way to beat the market is with disciplined and regular investments and a long-term horizon in view.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.