Outlook on mid & small-cap category in current market | CNBC MFCorner | Tarun Birani, CEO TBNG Capital

Prudent planning is the best way to invest. Planning secures one’s finances especially during the retirement stage and also to provide a comfortable life with the maximum benefits. From long term plans to short term gains, investment planning helps overcome financial hurdles and achieve every goal set. Sharing an outlook on the mid and small-cap category, Tarun Birani, CEO of TBNG Capital discusses his views while speaking to Sumaira Abidi on CNBC’s MFCorner in this interview. He shares his expert analysis on a rolling returns study done by him and the strategies that would best serve the purpose of the investor. According to him, one must invest prudently in both mid and small-cap funds strategically.

Here is the conversation:

Q: Is it a good time to invest in mid or small-cap funds?

A: In Investment markets, everyone tries to describe that the current market situation is different as compared to the last situation. There are a lot of things and strategies positioned in the market each year and due to this many accidents occur. However, there are many opportunities at the same time, that help you build and plan your finances wisely and appropriately. But, the key to better investment is proper planning. Once a plan is laid out and defined its tolerance level, one can keep playing out with different strategies.

Talking about mid and small-cap strategies, a rolling study shows that in the last 5 years the rolling returns of a small-cap fund are currently 3%. Looking at March 2020, the rolling returns are negative 6%, comparing that to the 8% positive returns which have been delivered by large-cap. Hence from an valuation point of view, there is a significant gap and there is a good amount of value which is there in mid and small-cap strategies.

The problem with the mid and small-cap strategy is the high impact cost because not many research analysts cover this kind of stock. For example, only around 5 analysts cover these small-cap stocks compared to an average 45-50 analyst covering a large-cap stock. One needs to be aware that this is a risky strategy but at the same time, the rewards have always delivered better returns. Therefore in this environment, investors with a high-risk strategy need to have at least 15-20% invested into a mid and small-caps strategy. It is not advisable to park all your funds into large-cap strategies one needs to have a good amount of money available in small-cap strategies as well. The long term trends and the dividend yield of small caps and mid-cap stocks are in favor.

If themes are available in the existing funds then there is no need to enter into new funds or NFOs. Let these new funds demonstrate their quality and only then should one consider investing. But, speaking on the Axis Special Situation fund, this fund has a different lineage with a tech enabled and strategic disruption theme. Also, 30% of this fund goes into global equities, which is a positive too. All said and done Tarun suggests that one should wait for a year at the least to gauge fund performance and then proceed to invest accordingly.

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