Unmesh Sharma, the Head of Institutional Equities at HDFC Securities, is advocating for a strategic focus on large-cap stocks amidst the current market volatility. Sharma highlights that recent corrections have made large-cap valuations more appealing, presenting a compelling risk-reward scenario for investors.
Market Turbulence Fuels Large-Cap Preference
The year 2026 has witnessed significant market fluctuations, with the BSE Sensex dropping 11% and the NSE Nifty 50 declining nearly 9.5% year-to-date. This downturn has been attributed to escalating crude oil prices, supply chain disruptions, and geopolitical tensions stemming from the US-Israel war on Iran. Despite a recent rebound in mid-caps, Sharma maintains a strong bias towards large-cap equities for their inherent stability during uncertain periods.
"Generally, the bias is towards large caps. What we look at it is risk-reward wise where do we have most comfort. If you have a large-cap at say 18 times earnings valuation and mid cap at 21 times, with slightly better earnings growth, but more volatile ROE, I would rather buy the large-cap," Sharma stated.
Valuation Advantage and Buying Opportunities
Sharma emphasizes that the correction this year has significantly improved large-cap valuations, making current levels opportune for buying on dips. He points out that while HDFC Securities covers a broad range of stocks, including numerous mid-caps, the relative valuation of large-caps currently stands out as favourable.
India's "Triple Whammy" and FPI Exodus
India's equity markets have faced substantial pressure from foreign portfolio investors (FPIs), who have pulled out over Rs 2.20 lakh crore in 2026 alone, surpassing the Rs 1.66 lakh crore withdrawn throughout 2025. This massive sell-off, driven by West Asia conflict-led uncertainties, has also contributed to the depreciation of the Indian rupee against the US dollar. Sharma identifies this as part of a "triple whammy" impacting the Indian economy, alongside the risks of the ongoing geopolitical conflict and potential impacts on corporate earnings.
Sector-Specific Outlook
From a sectoral perspective, Sharma offers nuanced views:
- Domestic-focused and Consumer-oriented Sectors: These sectors appear resilient and are looking sound.
- Rural Economy-linked Stocks: Sharma advises caution, suggesting investors avoid these until there is greater clarity regarding the monsoon season.
- IT Sector: Despite a substantial sell-off (BSE IT Index down over 27% in 2026) due to concerns about AI's impact on business models, Sharma views this as an overreaction. He believes IT stocks have reached "very interesting" valuations after many years, anticipating single-digit profit growth, high return on equity (ROE), and a long-term, gradual AI transformation.
- Banking and Financials: The firm favours large banks and select Public Sector Undertaking (PSU) lenders but remains highly selective within the Non-Banking Financial Company (NBFC) segment.
Overall, Sharma's outlook underscores a preference for established large-cap entities, which he believes offer a better blend of stability and value in a volatile and uncertain global economic landscape.