Small- and mid-caps in bear grip even as controversy over S Naren's comments rages on

markets

Amid controversy over ICICI Prudential AMC Chief Investment Officer S Naren's comments about expensive valuations in small- and mid-caps, the rout in the segment continues as mid-cap and small-cap indices entered bear territory.

The BSE MidCap and BSE SmallCap indices have declined 18 percent and 18.5 percent, respectively, from their record highs. More importantly, during Wednesday’s trading session, both indices fell to levels that were over 20 percent lower than their respective highs touched in September, effectively entering bear market territory.

Meanwhile, India's benchmark indices, the Sensex and Nifty, have lost 11.4 percent and 12.3 percent, respectively.

Valuations have also corrected sharply. In September, the BSE MidCap index was trading at a one-year forward P/E of 32.5x, which has now dropped to 25.48x. Similarly, the BSE SmallCap index, which had a one-year forward P/E of 27.18x in September, has since corrected to 22x.

Despite this decline, both indices continue to trade above their 10-year average P/E multiples, which stand at 24x and 19x, respectively.

Similarly, at the end of September, the Sensex and Nifty were trading at 21.5x and 21.3x forward earnings, respectively, but have since corrected to 19.7x and 19.1x. Their 10-year average P/E multiples, however, remain largely unchanged.

On Sunday, while speaking at the IFA Galaxy 2025, an event organised by a Chennai-based mutual fund association, Naren advised caution regarding SIP or systematic investment plan investments in mid- and small-cap stocks. “We think it is a clear time to take out lock, stock and barrel from small- and mid-caps,” he said.

Interestingly, Naren’s comments have created a furore of sorts with other fund managers also jumping in with their views.

Edelweiss Mutual Fund CEO Radhika Gupta said on X and LinkedIn, “Do not fall for the fear-mongering 10-day debates.” Gupta said in her social media posts that SIP is meant to be a simple savings investment instrument for the common person. In her words, it is “a fill it, shut it, forget it (kind) because most people struggle with markets, market caps, and SIPs.”

Further, Gupta urged investors to find a good manager and hold for 10 years in a sensible and balanced way. “Everything, including mid and small caps, is good in balance. Even an average flexi-cap fund has a 30% allocation to this category,” she said in her post.

In a similar context, Mahesh Patil, CIO of Aditya Birla Sun Life AMC, said that SIPs with long-term commitment are one of the best defence against the ongoing heightened market volatility.  "There will be ups and downs, but if you stay invested and keep putting in, it can give you long-term income, growth and savings," Patil said while speaking at Axis Capital’s India Conference.

Aashish Somaiyaa, CEO of WhiteOak Capital Management, in a series of tweets on Monday said that while he respects everyone's views, recent comments about the industry promoting small- and mid-cap SIPs despite market volatility were incorrect.

"If the market goes up I am a star manager. If market goes down you gave me money at wrong time and started your SIP at peak," Somaiyya said in one of his tweets.