Prefer Large Caps, Be Careful With Small Caps, Says Complete Circle's Gurmeet Chadha

Investors should have a "little bias towards" the large-cap stocks and be careful about small and micro caps as the benchmarks rally, according to Gurmeet Chadha of Complete Circle Wealth Solutions LLP.

The NSE Nifty 50 and the S&P BSE Sensex have gained around 6% since the start of December. The surge was buoyed by the Bharatiya Janata Party's better-than-expected performance in the recent assembly elections and hopes of the US Federal Reserve cutting interest rates next year.

"If you miss five–seven best days of the year your portfolio becomes very suboptimal," Chadha told NDTV Profit in an interview, underscoring that it is very important to be in the market. "You can take some of the calls of having some dry powder in place, rotate in various sectors because rotation is very swift and fast these days, but you can't take extreme calls of being out of the market."

Chadha said the Indian market was not expensive, but in a fair zone. He advised investors to use the dips but, at the same time, also recommended not paying 80–100 multiples. "We made good money, it's important to reset the return expectations at these levels and have a very balanced asset allocation."

Chadha suggested having a little bias towards large caps as half of the Nifty was still available at reasonable valuations. "Just be a little careful in especially the small and microcap space, where there is some euphoria in few pockets."

Chadha advised investors to take some contrarian approach as he expects out-of-favour sectors to come back. "Companies with oil derivatives as import like paints and some bit of impact on other building material may come back."

Although this quarter will be subdued for the information-technology sector, Chadha thinks that management commentary in January should improve as the outlook for the U.S. economy improves. "If you have a slightly patient view, you can stagger it over three-four-month period."

He also expects engineering, energy and realty sectors to do well. Among the mid caps, he recommends going for sector leaders.

Chadha sees a chance of making double-digit returns in the bond portfolio.

Amid rising expectations of several rate cuts in the next year, the 10-year bond yield in India has fallen by more than 1% after the Federal Reserve Open Market Committee's meeting, he said. "If you just buy a plain vanilla gilt fund or G-Sec, chances are that you'll make 4–5% mark to market."

The short-term money should go to bond and the medium term investment should be slightly staggered, he said, adding that the overall trends look positive.