More correction ahead? Five-year bull market may not unwind in five months, warns Jimeet Modi of Samco MF

A five-year bull market cannot unwind in five months, says Jimeet Modi, Founder and Director, Samco AMC, indicating that there may be further pain ahead for Indian equity investors, who are already reeling from the massive sell-off in recent months.

Modi still sees some froth in the mid- and small-cap space despite the ongoing correction in the domestic equity market. The benchmark equity index BSE Sensex retreaded 13% since October 2024 till date, while the BSE Midcap and BSE Smallcap indices tanked 22% and 25%, respectively, during the same period.

“Lots of excesses have been created even after the correction. Nifty Midcap 150 and Smallcap 250 still have some froth. Five years of bull market may not unwind in five months. However, some market watchers believe that the market is already in the process of forming the bottom,” Modi said. Before witnessing the correction since October 2024, the 30-share index soared 186% during March 2020 and September 2024. On the other hand, the BSE Midcap and BSE Smallcap indices rallied 367% and 495%, respectively, during the same period.

Modi further added that the markets have started the process of mean reversion. “There is a possibility of a 20%-30% mean reversion. The Nifty 100 could potentially outperform the next 101-500 companies if mean reversion actually plays out,” he said adding small caps may dip around 25%-30% in case of mean reversion.

The market watcher also said there is a real case for a continued correction as far as small-cap and mid-cap stocks are concerned. “There is a strong case for looking at large caps going forward—a space that has been completely ignored by market participants over the past 3-4 years,” Modi added.

While sharing some data, he showed that the return chasing behaviour completely neglected the top 100 companies. Modi added that asset under management (AUM) of midcap funds as a percentage of large cap AUM hit 111.46% as of December 2024. The figure was hovering around 69.01% in August 2021. Likewise, the AUM of small cap funds was around 92% of large cap AUM as of December 2024 against 44.09% in August 2021.

Umesh Mehta, CIO, Samco MF added that markets keep on shifting. “Winning stocks and sectors changes. Today large caps are under owned. It is time to look at large cap space where there is a lower volatility and have tested business models. Large cap stocks are a beautiful place where all the stocks have facility to hedge,” he added.

Considering the present market conditions, Samco AMC on March 4 announced the launch of a new fund offer (NFO) for the Samco Large Cap Fund, an open-ended equity scheme focused on investing in large-cap stocks. The NFO will be available for subscription from March 5, 2025, to March 19, 2025. The fund aims to deliver long-term capital appreciation by building a diversified portfolio of the top 100 large-cap companies, leveraging SAMCO’s proprietary C.A.R.E. momentum strategy to identify high-quality, growth-driven opportunities.

Viraj Gandhi, CEO of Samco AMC said: “In the current market environment, large-cap stocks in India have become attractively priced relative to mid and small caps, presenting a compelling investment opportunity. After a period of significant outperformance by mid and small caps, valuations in that segment have stretched, while large caps offer better risk-adjusted returns and stability. With strong fundamentals and improved earnings visibility, large caps which are top 100 companies by market cap are positioned to lead the next phase of market growth. This makes it an opportune time to launch the SAMCO Large Cap Fund.”