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  • Robins Joseph

`Be cautious On Mid & Small Caps'

Updated: Apr 26


 Nifty is currently in positive trend. If you are holding long positions then continue to hold with daily closing stop loss of 22,120.

 

The Nifty 50 index has regained strength once again witnessing a decent pullback from the low made near 21,780 zones and currently moving past the 22,400 levels with sentiment much improved and further rise expected in the coming days provided no fresh unexpected geo-political tensions arises.

 

 The index would have the important near-term support at the 50EMA level of 22,120 zone which needs to be sustained

 

Banknifty is currently in positive trend. If you are holding long positions then continue to hold with daily closing stop loss of 47,512.


Be Cautious on Small and Mid cap stocks :

 

Nifty Small cap 250 has risen by whopping 69% in 1 yr compared to 27% in Nifty50 . This enforces that we need to move with caution while investing in small cap funds.

 

Small and midcap stocks have shown strong earnings growth momentum and high quality of earnings growth. However, the current valuations are stretched.  This means they are in an expensive zone

 

More importantly there is empirical evidence that suggests that after 3 years of rally in small caps the index has corrected meaningfully in the 4th year and returns in the 4th to 6th year have been flattish.

 

Small cap and midcap AUM (asset under management) % to large cap schemes in last 6 months have grown so big that a bubble in small cap space is being created

 

Surprisingly retail ownership in small cap companies have surpassed institutional ownership in many mid and small cap companies which is not a great sign at all.

 

Do not invest more than 20-25% of asset allocation in Small and Mid cap stocks/ fund 

 PREFER COMPANIES THAT HAVE Large opportunity; scalable businesses, sustainable moats , superior ROEs (over long period) ,quality of management – passion, leadership.

 

Historically, in the Indian markets, a combination of healthy ROE and high earnings growth has resulted in superior price performance

 

Avoid Companies with Corporate governance issues , high sensitivity to changing regulations, highly cyclical industry, capital misallocation.






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