Indian equities show a sharp divergence as large-cap stocks face investor apathy while mid and small caps fuel euphoria. Kotak Institutional Equities said the West Asia conflict and falling prices caused despair among large-cap investors. Meanwhile, retail investors got excited about smaller stocks, hoping for quick returns from recent positive developments.
Investor sentiment towards large-cap stocks is currently apathetic, despite improved valuations in the market. Retail investors are increasingly enthusiastic about mid- and small-cap stocks, enjoying recent positive developments in those sectors. The ongoing West Asia conflict and declining stock prices contribute to investor despair among large caps. Meanwhile, small and mid-cap sectors attract retail investors due to their potential for quick returns.
Mumbai: Indian equities are seeing a sharp divergence in investor sentiment, with large-cap stocks facing apathy despite improved valuations, while retail investors are showing growing enthusiasm for mid- and small-cap stocks, according to Kotak Institutional Equities.
In a report titled 'Despair, euphoria and hope in the same market', Kotak said the continued stalemate in the West Asia conflict and the steady decline in stock prices have resulted in "despair" among investors in large caps. At the same time, positive developments in certain small- and mid-cap-centric sectors have fuelled "euphoria" among retail investors.
Kotak said it hoped for a quick resolution to the West Asia conflict, which could turn the current despair around large caps into hope. Otherwise, the current euphoria around SMIDs could also give way to despair.
The brokerage said it was "quite puzzled" by the apathy towards large-cap stocks, pointing out that most large caps offer decent value after the sharp correction in their stock prices over the past few weeks or the prolonged "time" correction over the past few years.
Kotak attributed the apathy among FPIs to broader concerns around India, including risks to the country's macroeconomic environment from high oil prices and the lower attractiveness of India compared with other markets.
Among domestic retail investors, Kotak said the preference for small and
mid-cap stocks is due to their focus on quick returns, with past returns acting as an important reference point for investment decisions.
The brokerage said it was not surprised by the excitement around these stocks among retail investors, given positive developments in sectors dominated by these companies, including capital goods, contract development and manufacturing organisations (CDMO) and defence.