'Prudent approach: Stick to planned asset allocation'

Even as valuations in the small and midcap space have stretched, ASHISH SHANKER managing director and chief executive officer of Motilal Oswal Private Wealth, has been advising clients to prefer largecap and flexicap funds for incremental investment. In an interaction with Abhishek Kumar, Shanker discusses how the wealth management firm is rebalancing client portfolios and scaling back small and midcap allocations to desired levels. Edited excerpts:

- ASHISH SHANKER

What's your take on the equity market as we enter the new financial year?

While the economy remains on a strong footing, returns from this point onward will likely be lower. With the one-off positive surprises now behind us, returns will likely follow earnings growth, expected to be around the mid-teens this year. Although valuations in the small and midcap space are somewhat stretched, largecap stocks are still reasonably valued.

From here, two scenarios can play out: either small and midcap stocks will correct, or largecaps will outperform the smaller stocks. The likelihood of a correction in largecaps is low.

Has the concern around small and midcap valuations led to changes in client portfolios?

Exposure to small and midcap stocks had exceeded desired levels in many portfolios, prompting rebalancing. In certain cases, we've adjusted allocation plans to reduce small and midcap holdings marginally.