Broader Market Is Where A Good Harvest Lies

The market has a way of always rewarding the patient investor. But that’s if he or she is sitting on the right investments. At the same time, there are opportunities galore for discerning investors exploring the next prospect. Within this scenario, the last two years of underperformance of the broader market indices compared to frontline indices has tilted the riskreward scales in favour of these categories.

This space is now attractive for investors who are willing to take calculated risks. Our analysis shows that such underperformance creates a launch pad for the next leg of growth for the broader market indices and mutual funds dedicated to such categories. The last time we saw such a longer continuous underperformance of mid-cap and small-cap indices against large-caps on a two-year basis was between April 2012 and May 2014. Post that, the broader market generated huge returns for their investors and outperformed the large-cap for almost the next three years. The same pattern of performance is even followed by mutual fund schemes. In fact, the broader market dedicated to mutual funds tends to perform better than the large-cap funds when compared to their benchmarks. Even long-term investors who do not want to time the markets can now invest in broader markets given the fact that mid-cap and small-cap funds tend to generate better returns than the large-cap ones in the long run.

This is because these funds get the opportunity to invest and participate in the journey of small-cap to mid-cap to large-cap growth over a longer period. Besides, there are other reasons too why we believe that the broader market is waiting for the next round of a bull run. Our cover story this time talks in detail about the various other factors that will support reversal in the performance of mid-cap and small-cap categories – the early signs of which are clearly visible in the last one month’s performance. Therefore, as an astute investor you can increase your exposure to the broader market category at this stage. 

SHASHIKANT