India’s large-cap stocks are set to narrow their underperformance to smaller peers, supported by the return of foreign investors, an improving earnings outlook and attractive valuations, according to strategists.
Goldman Sachs Group Inc., Jefferies Financial Group Inc. and Societe Generale SA are among those expecting large caps to recover as global funds turn net buyers of Indian equities for a fourth straight week. The shift is likely to benefit large stocks the most because foreign investors own a larger share of their free float and were the biggest sellers during the recent downturn.
“As foreign sentiment improves ahead, we could see some rotation back into large caps,” Goldman strategists led by Amorita Goel wrote in a note dated July 11. “Valuations for large caps now look more palatable,” and they have seen shallower earnings cuts than mid-caps in the first half of the year, and provide better earnings visibility, they said.
