Sankaran Naren, Executive Director and Chief Investment Officer at ICICI Prudential Asset Management Company, has recently sparked discussions in the investment community by advising investors to reconsider their positions in small- and mid-cap mutual funds. Speaking at an event organized by IFA Galaxy, a Chennai-based association of mutual fund distributors, Naren expressed concerns over the current valuations in these segments. He remarked, "We think it is time to take out lock, stock and barrel from small- and mid-caps," highlighting his apprehension about the overvaluation of companies within these categories.

Naren's caution stems from the observation that the price-to-earnings (P/E) ratios for both small- and mid-cap stocks have surged to 43x, a significant increase from previous years. He noted that in 2013-14, these valuations were considerably lower, making the current figures "absurd" in comparison.

Furthermore, Naren pointed out that the momentum in small- and mid-cap stocks has begun to weaken, with these segments falling below their daily moving averages. This technical analysis suggests a potential shift in market dynamics, indicating that the upward trend in these stocks may be losing strength.

In light of these factors, Naren recommends that investors consider redirecting their investments towards large-cap and hybrid funds. He advocates for aggressive systematic investment plans (SIPs) in these areas, suggesting that they may offer more stability and potential for returns given the current market conditions.

While Naren's perspective is grounded in his extensive experience and analysis, investors should conduct their own research and consider their individual financial goals and risk tolerance before making investment decisions. Market conditions are dynamic, and what may be prudent advice at one time can change as new information and trends emerge.