The sweet spot lies in the mid-caps, says Niket Shah of Motilal Oswal

Before deciding to invest, young investors are advised to go through a company’s financial investment rather than adhering to the advice they receive on X (formerly twitter), believes Niket Shah, fund manager, Motilal Oswal Asset Management Company (MOAMC) in a telephonic interview with MintGenie.

He also speaks about the high earning potential of mid cap stocks, a view he doesn’t hold for small caps. No wonder then the allocation to small cap stocks in Motilal Oswal flexi cap fund (a scheme Mr Shah co-manages) is a paltry 3 percent.

Edited Excerpts:

Which are the themes, sectors that you suggest investors to consider investing into as we are geared to enter the next financial year?

Capital goods sector will stay strong. They are expected to perform well in the next financial year. With interest rates expected to fall, the real estate sector would also perform well. Third sector that will perform well is IT.

Although recovery in IT will not go back to the Covid level, the mid cap companies would post 15-18 percent returns in the time to come. Some of the AI (artificial intelligence) initiatives will start materialising now and the US elections will also conclude this year. Last but not the least, NBFCs will also do well.

What is the key advice that young investors — aiming for long term wealth creation — should follow ?

Young investors should stop getting carried away with what is being told on social media. They should, instead, read the companies’ annual statements and check their cash flow.

A company should have sustainable profit and lower cash flow can be there in one year and not year after year.

Also, they should not get carried away with fancy themes such as drones. Some of these companies have huge valuations to the tune of 50-70 multiples. Ideally, they should compare with the multiples of their global counterparts to get the perspective of how much overvaluation they are paying.

You are managing multiple schemes at MOAMC. Which one is the most underrated fund in the current scenario?

Flexi cap scheme, I believe, is the most underrated. We expect returns in this segment to remain sustainable. For this, we have cut down allocation to small caps but not to mid-caps that much.

In our flexi cap scheme, we now have 60 percent allocation to the large cap, 37 percent to mid-cap and only 3 per cent to the small caps.

How has the midcap segment performed during various market cycles?

We are quite confident and optimistic of the ‘mid cap’ as a category. Unlike small caps, they have a lower downside, but offer a high upside at the same time.

In MOAMC’s mid cap fund, there are multiple multi-baggers which have grown 7-10 times. We expect them to continue beating benchmark index by high single digits i.e., 4-5 percent in the next few years.

You are a Gujarati, what makes Gujaratis good in money? Is this a cultural thing or a mere perception?

I belong to Kuchchh (a district in Gujarat) and the people from this community — Kutchi — are sharp in numbers. They are also sharp enough to find different ways to overcome challenges. We see a challenge as an opportunity. All these traits would be there in all Kutchi. They have a growth mindset.

Do you see any immediate impact of general elections on the markets? And what is that?

General election results are already factored in the market. So, there is no expectation of a rally after the elections. However, if the 100-day plan after the elections is implemented as per the plan, or some major material benefits are offered then there could be a market rally in store. Else there could be some consolidation.