India’s battered small-capitalization stocks will eventually make a comeback for those investors willing to wait, according to ICICI Prudential Asset Management Company. Sankaran Naren, who helps manage 3.4 trillion ($47 billion) as the chief investment officer at the firm, said that the shares look interesting now and are well positioned to deliver results in three to five years.

India’s small-capitalization stocks have been struggling over the past two years, during which they have lost almost 30% of their value. In contrast, the benchmark equity index completed its fourth annual gain in 2019 amid a surge in global demand for blue-chip stocks.

“At this time the polarization between large and small caps is just too much, we think over the next three to five years this polarization will go away," Naren said. Still, “we are not yet in a situation where equities is a dirt cheap asset class where we can give a big buy call."

Small stocks have widely underperformed Sensex
Small stocks have widely underperformed Sensex

Analysts at other firms expect gains in the S&P BSE Sensex this year to be led by just a handful of big names, similar to 2019, as economic uncertainty is likely to keep investors flocking to the safety of quality stocks.

ICICI Prudential’s investment chief is advising clients to follow an asset allocation strategy based on their risk appetite and to consider debt and credit funds. The firm plans to gradually increase its exposure to smaller companies.

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