“When you pour foam into a cup, it spills into the saucer, and that saucer is large caps,” Dayal said on the sidelines of a corporate governance event hosted by the asset manager on Friday. “Some of the capital that wasn’t flowing into small and mid-caps is now flowing into large caps.”
Since the start of 2024, the Nifty has risen 12.8 per cent while the Midcap 150 and Smallcap 250 have gained nearly 21-22 per cent each.
Dayal is bullish on the Indian economy and corporate earnings, but is concerned about stock valuations.
“Earnings are good but the price people are willing to pay is a bit unusual in our view,” he said. Dayal warned about small and illiquid stocks. “We don’t know when the crisis will happen, but we know when. In every cycle, illiquid and small caps are always the ones that get hit the hardest,” he said. “It will happen again, we don’t know when it will happen, but we can tell you the outcome. The result will be that people will lose money, they will lose faith in mutual funds and they will pull out of mutual funds.”
