What's your outlook on the mid-cap segment of the market, given its sharp rise despite economic challenges? Overall, if you ask me about mid-caps as a category, we remain bullish because we see good long term opportunities across different companies going through various cycles in their businesses. There are many companies within each of their categories, who are leaders or they have some kind of competitive advantage. We believe such companies have opportunities and potential for growth in future. At times, it so happens that valuations also go through their own cycle. We had a period when valuations had become extremely high during 2017 and then it gradually corrected. March was extraordinary because of the pandemic. But I would say that generally, the valuations have softened a bit since 2018 and in the last few months, we've seen a very smart comeback. As it stands today in terms of valuations, when we look at the mid-cap Price to Book (P/B) versus the Nifty P/B numbers, it has moved upwards of their long-term average which is closer to 0.72. Today, we are closer to 0.78 and during the peak we had touched 1. So I would say that in terms of valuations, we have crossed the long-term average barrier and now we are slightly ahead. To build the desired position in mid-caps, we are looking forward to getting valuation comfort so as to build aggressively what we want. Also if any category goes through a bit of a time correction, it gives us an ideal opportunity to look at good companies at reasonable valuations. So at the moment we are a bit cautious about valuations. For many stocks, we are also witnessing that valuations have very quickly moved up the curve and capturing one to one and a half year of their future earnings and hence either we'll have to extend the horizon of investments beyond this one to two year for it to make sense, or the valuation itself needs to soften a bit by way of price-correction or time-correction before we become more aggressive. Through the market crash and the subsequent recovery, you've continued to hold 7-8 per cent in cash and equivalents. What are the reasons for high-cash allocation despite a sharp correction
This article was originally published on December 28, 2020.
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