What is your advise when it comes to opportunity within the broader market?
Largecaps have risen on the back of two things. One is FII flows, which are largely in the largecap segment. The flows are driven by a safety-oriented sectoral uptick. The largecap index has gone up because of healthcare, IT and banks.
At the other end of the barbell is the smallcap index. Though heavily loaded with industrials, it has risen as much as the largecaps or even more to the extent that the forward PEs of the smallcap index equals the largecap index because of liquidity. The money is not from FIIs, but from domestic MFs and Robinhood investors. The free float is very less as promoters and institutions own 50-65%. The tight liquidity situation of the stocks available for sale means that even a small reaction can shoot up prices. Smallcaps have been a beneficiary of this.
The polarisation is very strong. Midcaps are in between. Even today midcaps are far more diversified because they have the ability to absorb liquidity from FIIs and domestic investors. Hence the midcap forward PEs are at a 30% discount to largecaps and smallcaps. Midcaps are in a sweet spot. I would say that it is the best bet for the next 2-3 years. I expect the midcap index to outperform both the other two extreme indices.
What is the mantra to get rich?
The secret sauce to get rich is to set an ambitious goal and to liquidate when you reach the goal. So let us say, your goal is to get 3X return. Whatever you do, whether you buy a stock or a mutual fund, you exit ruthlessly if it multiplies by three times. You may then look at making a fresh investment. I think 3X is very reasonable because you know the rule of 72. If you get a return of 18%, it doubles in four years. So if it has gone up three times, the return is going to be far higher.
I would say the simple mantra is to keep 3X as your goal. The point is that people do not know when to exit in their wealth creation journey. They have seen their paper wealth rising, but sadly they also see it falling because they did not pull out. So the secret to wealth creation is knowing when to sell and a simple rule of multiplying your investment three times. It is a simple way where we will consistently make money and create wealth.
