Money To Flow Into Mid And Small-Caps Shortly
In the past 2 months, the Foreign Institutional Investors (FIIs) have pumped in about Rs.37,599 crore into India’s equity market. This is about 41 per cent of the entire amount invested by FIIs since January 2019.
Naturally, investors look for both valuation and safety while deploying the funds. This has led majority of the funds to go into the large-cap stocks thus, lifting the large-cap index. This polarised investment has now created a wide gap between the rise of the large-cap index and that of mid and small-cap indices. With safety being the driver, the rising valuation in large cap stocks is going to play deterrent very shortly. With funds expected to continue to flow into the equity markets, there is bound to be a spill over into the mid-cap and small-cap stocks. This will continue till the wide gap between the large-cap and other indices narrow down.
Do note that though the Sensex has gone up, most of the retail investors have hardly seen any benefit since they largely invested into mid and small cap stocks. These stocks are still languishing at 50 per cent lower to their peaks. Also, though the mid and small-cap indices do not show such a drastic drop, one needs to understand the reason. It’s quite amusing to know that quite a few stocks in the small-cap index have a market capitalization of over Rs.17,000 crore, to cite a few, Bata India Ltd, Pfizer, Adani Gas and so on. These surely do not appear to be ‘small-cap’ from the typical understanding of small-cap in the market. Owing to the presence of such heavy-duty stocks as constituents in the mid and small cap indices, these indices are not showing the true pain an investor is facing today. Our solace to the investors is to realise that the mid and small-cap indices are not the true comparison metrics they need to judge their investment performance on. Reality is that many of the stocks have taken a toll and are sitting fairly lower to their previous peaks. Period!
However, as mentioned earlier the mid cap and small cap stocks will see some strong revival in the months ahead. The gains are going to be worth the wait and pain. In fact, there will be many multi-baggers in the making. To put light on this opportunity, we have chosen to carry the cover story on Multibaggers in this issue. This story highlights the sectors that have a tendency to create most multibaggers and also provides a checklist in order to identify them.
Ever wondered whether low-price scrip is good for investment or high price scrip? In case you always had this question in mind – I urge you to read our special report on the lowpriced stocks versus high price stocks. I am sure reading this will prove to be more than profitable.
Consumer stocks are widely held by investors. Lower revenue growth in the recent quarters has prompted us to advise caution on the sector. Do read our special story to make necessary portfolio adjustments.
No denying the fact that the markets will get a strong leg-up as the economy (GDP) growth recovers. Stay focused, keep investing and rotate portfolio smartly! Mid-cap and Small-cap will start getting their due attention shortly.
Happy investing!
RAJESH V PADODE
Managing Director & Editor