Smallcaps and midcap stocks have had an excellent run at the bourses in the preceding year 2017. Amid rising volatility in the space, the S&P BSE Smallcap Index has cracked by nearly 4% in the last ten days, and shed more than 700 points to close at 19,342.18 on Friday. Top market voices and experts point out that the space could remain under pressure throughout the year.
In a recent interview to The Indian Express, top banker Uday Kotak raised concerns over the surging stock market and India’s financial savings going into select smallcap and midcap stocks. “Money is coming to a broad funnel and it’s going into a narrow pipe where massive amount of Indian savers’ money is now going into few hundred stocks. And you come back to the question of how good is the governance of these companies. The amount of money that’s going into small and mid-cap stocks is something on which we have to ask tough questions. Is there a risk of a bubble?,” Uday Kotak had said.
Andrew Holland, CEO, Avendus Capital Alternate Strategies told CNBC-TV18 in an interview that he expects midcap and smallcap shares to see a sharper declines, in case of a stock market correction. Hence, if investors are mimicking the smallcap Index, or invest into related index funds, they may be left with disappointed returns.
Are there any profitable strategies from the segment? What kind of stocks should the investors look to invest in? Smallcap czar Porinju Veliyath says that the investors should look for companies which can grow faster than the economy, to create wealth from the space. “
The investing community should look at Indian companies which are in the growth path, which can grow at a much faster rate than the economy and create wealth for the shareholders,” Porinju Veliyath told ET Now last week. According to him, investors may be left with dissapointed if they invest only into Nifty and Sensex stocks, as he believes that the index is saturated, and real wealth creation happpens outside of the them.
“In the last many decades, whatever was happening in the markets to Nifty or Sensex, the small caps and midcaps selectively have been the biggest wealth creators in India. A large number of small caps have become midcaps and large number of midcaps have become large-caps and some of the small large-caps have grown into mega caps,” Porinju Veliyath said in the same interview. “ Not every single disrupting company will generate wealth. Disrupted versus disruptive is the theme for 2018,” Nilesh Shah of Kotak Mutual Fund said, sharing his insights relating to profitable investment strategies.