Updated on 9 Sept 2016
The domestic equity market is not expensive and can trade at higher multiples as long as long as interest rates are low and are trending lower. But if you are hunting for investment opportunities, then smallcaps are likely to offer better upside, said Mark Mobius, Executive Chairman, Templeton Emerging Markets Group at Franklin Templeton Investments. There are a number of good stock in the Indian smallcap space. In India, there are more smallcaps than largecaps. The choices are more and they offer better exposure to the consumer space," he said in an interview
He further said valuations in the smallcap space are not worrying because of the low interest rate environment. He further added If our basis assumption of economic expansion holds true, the rally in the smallcap space is likely to continue and it will only accelerate if it starts reflecting in earnings as well. The S&P BSE Smallcap index rose over 23 per cent compared with a 16 per cent rally in the S&P BSE Sensex. It hit a fresh 52-week high of 12,853 in line with the momentum seen in the market. More than 50 stocks have already doubled investor wealth in the last one year in the S&P BSE Smallcap index, which comprises stocks like PS IT Infra (up 833 per cent), Tata Metaliks (up 383 per cent), Sudarshan Chemicals (up 321 per cent) and Manappuram Finance (up 297 per cent). There are a number of stocks which might look expensive compared with historic valuations, but investors should be more concerned about growth opportunities, which will be plenty for the smallcap companies rather than largecap companies.
However, an intermediate correction cannot be ruled out, but long-term investors should use it to enter quality stocks. As the company starts growing, it will start receiving attention from institutional investors, which will fuel a further rally in the index.