CIO Speak: Perception & reality

As the economy grows, it engenders myriad opportunities for small and medium-sized businesses to leapfrog their growth curve and deliver exponential returns. However, these opportunities need to be mined since at a fundamental level, execution risk continues to persist. To conclude, keeping in mind India’s long-term growth potential, investors should consider taking exposure to mid-cap investments. However, at the current juncture, when a significant number of mid & small caps are trading at peak valuations, it is important to be cautious and take investments decisions judiciously. Thus, selection of the right investment remains key.

Highlights

• While volatility is a relevant factor to consider while making investment decisions, it is important to understand that a substantial part of volatility related risk can be mitigated through patience and long-term investing.
• On a monthly 3-year rolling returns basis, none of the categories have consistently outperformed the other, underscoring the need to build a well-diversified portfolio allocated across the three market-caps.
• Both mid-cap funds and small-cap funds have the potential to add value to investor portfolios. More specifically, mid-cap funds are better suited to new investors who aim to enhance the risk adjusted returns of their portfolios while small-cap funds are a better fit for mature and seasoned investors who are seeking additional alpha.
• The selection between mid-cap funds and small-cap funds needs to be more nuanced and cannot solely hinge upon risk & return.