Indian asset manager Tata AM sees value in large-cap stocks over smaller peers

By Savio Shetty

MUMBAI (Reuters) - The sharp rally in Indian mid-cap and small-cap stocks in 2023 could slow down as large-caps take over the baton for the next six months, a senior fund manager at Tata Asset Management said on Tuesday.

"I expect mid-caps and small-caps (to) see some consolidation due to high returns in a very short time frame," Chandraprakash Padiyar, who oversees $1.74 billion at the Tata Group firm, told the Reuters Trading India forum.

"For the very short term, i.e., six months, the preference is towards large-caps," Padiyar said, adding that within the segment, he found banking and financial stocks attractive, based on their valuations and earnings outlook.

Mid- and small-cap indexes have significantly trounced their larger peer in 2023. The Nifty mid-cap 50 index has risen nearly 33% so far this year, while the Nifty small-cap 100 index is up 31%. In comparison, the benchmark Nifty 50 index has advanced 8%.

The Mumbai-headquartered firm is also 'overweight' on stocks in the manufacturing sector due to "very positive" signs of a pick-up in capacity utilisation, which Padiyar said was "in general, moving towards 80%".

Tata Asset Management saw its assets increase by 4% in August to $15.7 billion from the previous month, making it the fastest growing asset management company for firms managing assets above 1 trillion rupees ($12 billion).

Padiyar further sees the China-plus-one theme playing out in select sectors in India, including pharmaceuticals contract development and manufacturing organisation (CDMO) and auto ancillaries.

"There are some managements (within these sectors) we are focusing on, which we believe can deliver," he said.

Padiyar also said the lack of room to launch more active funds by top asset managers is the key reason for the rise in passive products. He expects passive funds to grow, but does not see this segment becoming a large part of the $558 billion industry.

($1 = 83.19 Indian rupees)

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(Reporting by Savio Shetty in Mumbai; Editing by Divya Chowdhury and Sonia Cheema)