Mid, small caps to outperform large caps, says Aditya Birla Sun Life AMC in ‘5 big trends for future’

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After 3 years of underperformance, Mid and Small caps should outperform large caps led by economic recovery, lower interest rates, and increased representation in emerging sectors like chemicals, digital platforms, etc, Aditya Birla Sun Life AMC Limited today said in its annual Trendspotting Report.

The report prepared by the Alternate Assets Equity Investments team of Aditya Birla Sun Life AMC has tried to capture the insights on key sectoral trends over the last two decades and applied the insights from this research to arrive at the 5 big trends for the future.

The report said every decade presents a set of new trends, led by a confluence of economic, technological and demographic factors and offering the opportunity for alpha creation.

Looking at the past market data, one can decipher the interplay of various macro and micro factors coming together to create a market cycle that favours a set of industries. Therefore, an ability to spot the trend and therefore ride it with conviction is a vital part of investing, it added.

Commenting on the Trendsetting Report, A. Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC Limited said, “We believe that key to successful investing over a long period is an ability to spot trends. Looking at data since 2002, the top five performing sectors vary greatly in each market cycle. The variation in returns among the best and worst-performing industries during a cycle is too large, again underscoring the importance of picking the right themes. Through this annual research initiative, we will bring forward some of the key market insights and dynamics at play, which we believe will be important enablers in investment decisions”.

The asset manager has analyzed the big trends that have played out over the last couple of decades and has identified the key enablers of any big structural trend. Based on these enablers, it has identified the key trends of the future and its potential beneficiary sectors.

Based on the framework of this study, the asset manager has identified the following five trends that could play out over the next 3 to 5 years:

1. Manufacturing: A mix of push and pull factors to drive manufacturing in India like Atmanirbhar Bharat & Vocal for Local Initiatives by the GOI, along with diversification of global supply chains.
2. Digitalization: Digitalization in India is fast-tracked due to the low cost of data, government initiatives like Aadhar, UPI, and increased adoption by the Corporate sector to improve productivity.
3. Sustainability: Rising risks from Environment are pushing the government & companies to adopt a more sustainable way of doing business through green fuel, green technologies, and green mobility.
4. Cyclical Revival in Real Estate: Low-interest rates, COVID-19 induced WFH trend and Industry consolidation induced by RERA & availability of capital to larger players should lead to a revival in real estate and ancillary sectors like building materials.
5. Revival in Mid & Small Caps: Mid and Small caps after 3 years of underperformance should outperform large caps, led by economic recovery, lower interest rates, and increased representation in emerging sectors like chemicals, digital platforms, etc.