As the markets tank, the small- and mid-caps have been taking a heavy beating. However, all investors know that the real gains will accrue when a small- or mid-cap transitions to be a large-cap. In a discussion at the India-Asia Investment Forum, experts in a panel discussion on ?Indentifying India?s next generation market leaders?, were of the opinion that it is the passion to create value on a sustained basis will differentiate the winners from the also-rans.
Investors, at first must understand the different characteristics of large- and mid-caps. Ananda Mukerji, MD and CEO, Firstsource Solutions said, ?Laws of physics apply in the case of large- and small-caps, there is the inertia factor. Large-caps will not be able to move fast and the small-caps to be more volatile.?
Krishnakumar Natarajan, president and CEO IT Serices, Mindtree Consulting, when asked about locating sectors that would out-perform said, ?The dynamics of the manufacturing is different from services. In the manufacturing sector and in the service sector it is about relationships.? Hence, investors need to be careful and not get carried away by noise that gets created. ?Mid-caps will offer better if not equal value,? asserts Natarajan.
Isolating winners in the small- and mid-cap space is fraught with risk, hence this should be managed well. Shreekant Javalgekar, director finance, Financial Technologies says, ?One must look at how the company looks at risk itself and its business model.? ?Multi-baggers are not available on spreadsheets,? he added emphatically.
At the source of creating strong businesses is the attitude the management posses. Natarajan adds, ?Passion and commitment to build a large corporation, especially in the founding management is a key differentiating factor. Accompanied with this is the ability to execute these plans and keep on learning from mistakes. They should think like a large-cap.?
Mukerji advises management to look at their businesses from the outside and think like investors. It is then that they will start thinking on terms of making a transition to the bigger field. Javalgekar cautions, ?Replicating large-caps will not work, building value on a sustained basis will.?
On the topic of the critical investment deterrent,? impact cost?, which institutiona bear when share prices rise sharply when institutions purchase and fall when sold, Javalgekar advises clear communication from the management of their plans. Investors also should factor these costs in their plans and take a long-term view, he concluded.