Why small-caps fail to charm Andrew Holland of Avendus Capital Public Markets Alternate Strategies LLP

Avendus Capital's Andrew Holland believes that there is going to be more disruption in the BFSI industry, either through regulation or through new entrants.

"If everyone wants to buy small-caps and no one wants to buy large-caps, that is a space I’m worried about," said Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies LLP in an exclusive interview with Moneycontrol on August 21.

Watch the full interview with Andrew Holland here

The small-caps and mid-caps have been rallying recently, outperforming the large-cap indices. The Nifty Small Cap 100 has delivered a 25.72 percent return over the past six months and the Mid Cap 100 a 24.77 percent return over the same period. The Nifty 50, which is a large-cap index, has delivered an 8.79 percent return over the past six months.

Market expert Holland considers the small-cap space to always be fraught with danger due to the difficulty of identifying good stocks in the highly volatile space.

He believes that it is difficult to identify which companies in the small-cap space have good governance and which ones have bad governance. Therefore, he likes to be selective in buying small-cap stocks.

“The question to ask is when can a small- or mid-cap, become a large-cap in the future. Do they have the kind of management, the governance, the right board…?” Holland said, explaining the questions confounding managers when they look at the space.

He believes that whenever the markets face the risk of trade, the small-caps are the ones which will suffer more pain than the large-caps.