The small cap basket has done much better than the large cap one, and most of the foreign liquidity in the recent times has moved more into the mid cap basket than the small cap one. Domestic investors too have tilted towards midcap and smallcap SIPs rather than the largecap-oriented firms in terms of SIP investments, said Harsha Upadhyaya, CIO-Equity at Kotak Mutual Fund.

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However, he warned that one should remember that even with the kind of sharp upmove that has been witnessed in the last four months or so, it cannot be a one-way market from hereon.

"One has to prepare for some volatility at some point," he said.

Upadhayaya said the earnings season has panned out in-line with expectations. "Having said that, we should also remember that we have seen very strong inflows from foreign shores for the last four months, which has driven the markets across the board not just largecaps, but more so in case of midcaps and smallcaps. The valuations have definitely moved higher than our comfort levels, at least in the immediate term. So to that extent, we continue to remain a little cautious on the markets," he said.

Upadhyaya also spoke to CNBC-TV18 on his outlook on consumption, the auto sector, new-age tech platforms and more.

On bank stocks, he said while their results have been very strong, there hasn't been a commensurate stock performance. "While margin are definitely going to look a little softer going forward, we still believe that earnings growth for this basket is going to be better than the average market earnings growth. So we cannot say that this segment is going to underperform over the next few quarters. But at the same time, I think the kind of outperformance that we have seen from this basket, it might moderate," he said, adding that there cannot be a uniform rally in this segment, which is true for the entire market.

He said he continues to remain positive on the private and public capex. "Even though we had the COVID-19 disruption, over the last five to six years, we have witnessed overall investments and doubling that is private capex and public capex (aggregate for Centre and state), despite the issues that we have seen in the economy. And there is no reason to believe that this sort of growth rate cannot be met over the next five to six years. In fact, it's going to be much higher," he said.

Talking about the consumption basket specficially, he said the premium end has remained quite resilient, even through the COVID period and post the COVID disruption. In the auto space, he said EVs have created a large disruption. "Now that we have seen the new product launches, there is a little bit of stability on the volumes. As we know, most of the manufacturing segments, including two-wheelers will gain from moderating inflation on the raw material side, we should see better earnings growth from this basket. And that's what the market is reacting to," he said.

And lastly, on the new age-themed stocks, he said that even though there have been some overhangs with regards to management, there is now a little bit of stability in some firms. "Those companies which are delivering on the promises made earlier, those which are moving towards the profitability path with a visible roadmap, are the ones that will probably tend to outperform the rest of the basket in our opinion," he said.

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(Edited by : Anshul)

First Published:Aug 8, 2023 2:12 PM IST