Largecaps have risen on the back of two things. The first is FII flows, which are mainly in the large capital sector. These flows are driven by a security-oriented sector improvement. The large-cap index rose due to healthcare, information technology, and banking.
At the other end of the barbell is the capital index. Though heavily loaded with industrials, it has risen as much or even higher to the point where small-cap index futures PEs match the large-cap index due to liquidity. The money does not come from FIIs, but from domestic MFs and Robinhood investors. The free float is much lower with promoters and institutions that own between 50% and 65%. The tight liquidity position of stocks available for sale means that even a simple reaction can cause prices to rise. Smallcaps has benefited from this.
The polarization is very strong. Midcaps are in between. Even today midcaps are more diversified as they have the ability to absorb cash from FIIs and local investors. Therefore, the midcap forward PEs are at a 30% discount on large and small caps. Midcaps is in a beautiful location. We'd say it's your best bet for the next 2-3 years. We expect the midcap index to outperform the other two extreme indicators.
What is the mantra to get rich?
The secret sauce to getting rich is to set an ambitious goal and filter when you reach the goal. So let's say your goal is to get a 3X return. Whatever you do, whether you buy a stock or a mutual fund, you will be merciless if it gets triple. You can then consider making a new investment. We 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 you go up three times the performance will be much higher.
We'd say a simple mantra is to keep 3X as your goal. The point is, people, don't know when they will embark on their wealth-building journey. They have seen their paper wealth rising, but unfortunately, they also see it falling because they did not pull out. So the secret to build wealth is knowing when to sell and a simple rule of multiplying your investment three times. It is a simple way in which we will constantly earn money and create wealth.
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