After the recent rally in the large-cap space, there is a possibility of some profit taking in FY20. Hence, investors should be careful while picking stocks if they have a short term time horizon.
The financial year 2019 has been particularly good for large-cap stocks as compared to the broader market as smart money moved from high beta small and mid caps to large-caps.
As many as 29 companies in the S&P BSE Large-cap index rose 10-60 per cent in FY19, including Bajaj Finance, RIL, Axis Bank, TCS, ICICI Bank, Aurobindo Pharma, Bajaj Finserv, Power Finance Corp, Dr Reddy’s and Infosys.
As in FY20, investors should look for quality large-cap stocks which can deliver consistent returns in the near future.
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A large part of the rally in the benchmark indices was led by bluechip stocks such as Reliance Industries, ICICI Bank, State Bank of India, HDFC Bank, etc. Experts say these stocks will continue to command higher valuations.
After the recent rally in the large-cap space, there is a possibility of some profit taking in FY20. Hence, investors should be careful while picking stocks if they are investing for a short term as the risk-to-reward ratio may not be that favourable. However, if one is investing for the long term, large-caps are still one of the safest bets.
Stocks may be acquired either for the value that they may provide or for the growth they can bring in, and equity investing is for the longer term and not for the short term, suggest experts.
“While one may pick up all weather stocks mainly from the largecap space, one needs to carefully choose stocks from across the rest of the market-cap after considering various other relevant factors,” said Joseph Thomas, head of research, Emkay Wealth Management.
“It is also important to understand that some of the stocks that have run up too much may be at profit booking levels while some others could be accumulated further. This differs from stock to stock,” he said.
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