Samit Vartak loves smallcaps for firm balance sheet, better earning and prudent strategy

Samit Vartak.

There are several opportunities available in the midcap and smallcap universe and some of them are definitely popularly priced, believes Samit Vartak, the Founding Partner and Chief Investment Officer of SageOne Investment Managers LLP.

Valuations in the last 18 months have corrected quite a bit, said Vartak at a Crystal Gazing Summit and Awards 2023, organised by PMS AIF WORLD. “Most of the mid and smallcap stocks have corrected by 30-40 percent,” he added.

This time, despite the correction, balance sheets of companies in the broader markets look quite strong and so is their cashflow generation. These factors generally go for a toss in the euphoric periods which is not the case this time, Vartak pointed out.

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He believes the quality of earnings has deteriorated in the largecap space and even mid and smallcap companies witnessed some slide, but the companies in the broader market have done relatively well, he said.

In the past two years, Nifty Midcap 100 has gained 34 percent, Nifty Smallcap 100 is up over 18 percent, while Nifty 50 is up 17 percent. These indices have shot up 69, 52 and 46 percent, respectively, in the past three years.

In January 2023, smallcap and midcap schemes garnered Rs 23 billion and Rs 16 billion, which is 31 percent of the total flows received in equity schemes, said Nuvama Wealth Management. Both these categories see the most steady inflows as compared to other categories for the last 13-15 months, it said.

“Since October 2021, smallcap schemes witnessed continuous increment in inflows. In the last few months, the flows have hovered around Rs 16 billion. In January 2023, the inflow was at a multi-month high of Rs 23 billion and that too without any NFOs (New Fund Offers),” the brokerage firm said.

The market maven likes smallcap companies, considering their firm balance sheets, better quality of earnings and prudent management strategy. “You need to pick your spot because it’s a vast space,” he alerted.

“It is very important to be careful while putting money in mid and smallcap space, because if one gets in at the wrong time when the stock is at the peak of its cycle then it could take years to recover from that,” he said.

There is very little liquidity available in the broader market and when it dries up, the volatility is also higher. But in a euphoria phase, even a few billion dollars more could take the indices higher, he pointed out.