Why HDFC Securities’ institutional equities head has a bias towards large caps amid current volatility
Unmesh Sharma opined that the correction this year has led to valuations beginning to look better in large caps and current levels offer a good opportunity to buy on dips.
- May 14, 2026,
- Updated May 14, 2026 6:21 PM IST
The US and Israel war on Iran fuelled a lot of volatility in the equity market over the last 2-3 months. But there has been rebound in recent weeks, particularly among the midcaps. Earlier this month, on May 8, the BSE 150 Midcap index as well as the Nifty midcap 100 index hit a new 52-week high in intraday trading after a fairly long consolidation. Strong earnings in some counters, along with value buying lifted the indices.
However, Unmesh Sharma, the head of institutional equities at HDFC Securities currently favours the large caps for their relative stability amid the current uncertain times.
“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 (return on equity), I would rather buy the large-cap,” Sharma told BT in an interaction.
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Year-to-date in calendar 2026, the BSE Sensex is down 11%, while the NSE Nifty 50 has declined close to 9.5% as the war has led to a surge in crude oil price and disrupted supply chains, which is impacting several sectors and may lead to some slowdown in the GDP growth this year, if the war prolongs for long.
Sharma says the correction this year has led to valuations beginning to look better in large caps and therefore, current levels offer a good opportunity to buy on dips.
“We cover 275 stocks. Invariably, there are more mid-caps than large caps. But, in that right now, we would have a natural bias towards large caps, more because of the relative valuation itself being ok,” he noted.
Foreign portfolio investors (FPI) have pulled out massively from India’s equity markets amid the West Asia conflict-led uncertainties. In 2026, till May 14, FPIs have sold over Rs 2.20 lakh crore worth in the equity market, eclipsing the Rs 1.66 lakh crore they sold through the entire 2025. The massive sell-off has put a pressure on the rupee against the US dollar. India’s economy is facing a triple whammy, Sharma says – the FII pullout from several emerging markets, including India; the rupee depreciation and risks of the ongoing West Asia war on the country’s fiscal; and the expected impact on corporate earnings.
Generally, Indian equity market has traded at a premium to other, especially emerging markets. Following the correction, Sharma notes, the valuation currently at the lower-end of the band. But, amid the current uncertainty and the falling rupee, the FPIs may still want to wait and watch
From a sectoral perspective, he feels domestic-focused sectors and consumer-oriented sectors are looking all right. But, rural (economy-linked) stocks could be avoided till there is some clarity on how the monsoon pans out,” he noted.
Notably, Sharma likes the IT sector too, even as there has been a sell-off across the sector in recent months, on growing concerns of an adverse impact on their business models as AI (artificial intelligence) gains traction. The BSE IT Index has tumbled over 27% in 2026 to May 14. Sharma feels the selling over AI worries has been a bit too much.
“After many years (IT) stocks have come to valuations, which are very interesting,” he pointed.
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But, what about the uncertain outlook? Sharma pointed the companies will still see single-digit profit growth, ROE (return on equity) is high and (price to earnings) multiples could only rise. The overall AI transformation will happen, but over a long-period, he feels.
The broking firm likes large banks and a few PSU lenders too. But, it is very selective on the NBFC front.
The US and Israel war on Iran fuelled a lot of volatility in the equity market over the last 2-3 months. But there has been rebound in recent weeks, particularly among the midcaps. Earlier this month, on May 8, the BSE 150 Midcap index as well as the Nifty midcap 100 index hit a new 52-week high in intraday trading after a fairly long consolidation. Strong earnings in some counters, along with value buying lifted the indices.
However, Unmesh Sharma, the head of institutional equities at HDFC Securities currently favours the large caps for their relative stability amid the current uncertain times.
“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 (return on equity), I would rather buy the large-cap,” Sharma told BT in an interaction.
MUST READ: Stock market: After gold, silver, 5 more policy actions with petrol, diesel hike soon?
Year-to-date in calendar 2026, the BSE Sensex is down 11%, while the NSE Nifty 50 has declined close to 9.5% as the war has led to a surge in crude oil price and disrupted supply chains, which is impacting several sectors and may lead to some slowdown in the GDP growth this year, if the war prolongs for long.
Sharma says the correction this year has led to valuations beginning to look better in large caps and therefore, current levels offer a good opportunity to buy on dips.
“We cover 275 stocks. Invariably, there are more mid-caps than large caps. But, in that right now, we would have a natural bias towards large caps, more because of the relative valuation itself being ok,” he noted.
Foreign portfolio investors (FPI) have pulled out massively from India’s equity markets amid the West Asia conflict-led uncertainties. In 2026, till May 14, FPIs have sold over Rs 2.20 lakh crore worth in the equity market, eclipsing the Rs 1.66 lakh crore they sold through the entire 2025. The massive sell-off has put a pressure on the rupee against the US dollar. India’s economy is facing a triple whammy, Sharma says – the FII pullout from several emerging markets, including India; the rupee depreciation and risks of the ongoing West Asia war on the country’s fiscal; and the expected impact on corporate earnings.
Generally, Indian equity market has traded at a premium to other, especially emerging markets. Following the correction, Sharma notes, the valuation currently at the lower-end of the band. But, amid the current uncertainty and the falling rupee, the FPIs may still want to wait and watch
From a sectoral perspective, he feels domestic-focused sectors and consumer-oriented sectors are looking all right. But, rural (economy-linked) stocks could be avoided till there is some clarity on how the monsoon pans out,” he noted.
Notably, Sharma likes the IT sector too, even as there has been a sell-off across the sector in recent months, on growing concerns of an adverse impact on their business models as AI (artificial intelligence) gains traction. The BSE IT Index has tumbled over 27% in 2026 to May 14. Sharma feels the selling over AI worries has been a bit too much.
“After many years (IT) stocks have come to valuations, which are very interesting,” he pointed.
MUST READ: Smart money signal? Here’s what warrant conversions at premium hints about corporate confidence
But, what about the uncertain outlook? Sharma pointed the companies will still see single-digit profit growth, ROE (return on equity) is high and (price to earnings) multiples could only rise. The overall AI transformation will happen, but over a long-period, he feels.
The broking firm likes large banks and a few PSU lenders too. But, it is very selective on the NBFC front.