Midcap correction is profit booking, not a structural shift to largecaps: Edelweiss MF

The recent correction in India's midcap and smallcap stocks should be viewed as profit booking rather than the start of a structural shift towards largecap stocks, according to Dhruv Bhatia, Fund Manager-Equity at Edelweiss Mutual Fund, who continues to see stronger growth opportunities in select midcap companies.

Bhatia said the recent weakness has been driven by rising crude oil prices, foreign investor selling and earnings disappointments in some pockets of the market. However, he believes the correction has improved valuations and created opportunities in select sectors.

He added that the fund house continues to favour businesses with stronger earnings growth and expects selective opportunities to emerge as the correction progresses.

According to Bhatia, there is no reason to believe investors should abandon mid-caps in favour of largecap stocks.

He added that valuations have become more reasonable after the recent correction. While largecap valuations have improved, he noted that growth still remains muted relative to where the midcap is.

Bhatia believes investors should remain selective across both largecap and midcap stocks instead of making broad allocation changes.

He identified crude oil prices as the single biggest factor that could determine market direction.

According to Bhatia, crude prices remaining above the $100-a-barrel mark could keep markets volatile while also extending foreign investor selling.

Bhatia said Edelweiss Mutual Fund generally remains invested rather than holding large cash balances. He currently prefers domestic cyclical sectors, especially private sector banks across market capitalisations.

He also sees opportunities in the automobile and auto ancillary sectors, particularly passenger vehicle manufacturers.

Bhatia said the fund house remains constructive on healthcare despite recent volatility linked to regulatory concerns.

He noted that pharmaceutical and healthcare companies continue to be attractive over the medium term, although investors should remain selective and monitor quarterly earnings before increasing exposure.

Overall, Bhatia expects stock selection rather than broad sector allocation to drive returns as markets navigate macro uncertainties over the coming months.

For the full interview, watch the accompanying video



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