The current market conditions present a strong opportunity for long-term investors to target largecap stocks, suggests Nimesh Chandan, Chief Investment Officer at Bajaj Finserv AMC.

According to Chandan, the recent correction in large-caps appears to be tapering off, bringing the market closer to a stable valuation of roughly 20 times forward earnings over the next 18 months.

He noted that the market has reacted sharply to minor earnings misses, but views this volatility as advantageous for long-term investors, who can benefit from a contrarian approach in these segments.

Chandan also addressed recent shifts in foreign investment flows, with capital moving from India to other emerging markets like China, resulting in consistent selling pressure from foreign investors. He sees this pullback as beneficial for the market, as it removes excesses and opens an ideal entry point for long-term investors.

Chandan, who oversees assets totalling nearly $1.19 billion, shared insights on midcap and smallcap stocks, emphasising that these categories are broad, making it challenging to generalise trends—especially within small caps.

He noted that areas that have enjoyed prolonged popularity may now be experiencing overinvestment, and while minor corrections might not fully reset high valuations, there are specific opportunities within these segments. For instance, consumer stocks within the mid and smallcap space have underperformed over the past six to twelve months, presenting potential areas of interest.

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However, he believes largecaps appear to be a more straightforward choice at this time, having seen corrections without substantial recent performance.

Chandan noted that recent consumer sector performance may have been overly judged due to a few weak results and short-term factors, such as rainfall or seasonal fluctuations impacting this quarter.

He highlighted that when prices in this sector fluctuate more than the fundamentals warrant, it can create an opportune time for investment.

Chandan also emphasised India’s long-term growth potential in consumption, with per capita income expected to increase from around $2,500 currently to approximately $4,000 by the decade’s end.

He pointed out that consumer companies, known for high return on equity, strong cash flows, and competitive advantages, are now undervalued compared to historical levels and market premiums. This makes it a favorable time to explore opportunities within this quality basket of companies.

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