People who invested in small and midcaps during the earlier rallies and are now sitting on losses should hold and wait, Palka Chopra, Senior Vice President, Master Capital Services said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q) What is leading to a selloff in the small & midcaps space for the past 2 trading sessions?
A) Midcap and Smallcap index witnessed sudden selling, which the market participants attributed to profit booking.
Indian indices outperformed benchmarks during the covid-19 pandemic, and now it is seeing some sharp correction. Both small-cap and mid-cap sectors have been falling as the stocks are going through adjustment of their valuations.
Both small-cap and mid-cap stocks have beaten the benchmark return by near 3-times post-second wave of Covid-19. When the returns were so sharp, selling was also expected due to the profit-booking trigger.
Any significant dip could be considered as a good opportunity to accumulate quality stocks in these markets.
Q) What should be the strategy of investors with respect to the small & midcaps space?
A) Especially in times of economic stress, investing in mid-and-small-cap stocks is highly risky. People who invested in small and midcap during the earlier rallies and are now sitting on losses should hold and wait.
If an investor wants to take exposure in the mid and smallcap segment, then in order to reduce risk and ensure diversification, investment can be done through mutual funds which include the mid and smallcap segment.
The choice of category and fund depends upon the investor’s horizon and risk appetite. The risk of failure in one or a few companies could be reduced through well-diversified mid and smallcap portfolios, however, the returns will be lower too.
Investors have to stay invested in good companies which have strong fundamentals because those are the ones that will survive this uncertain period.
Choose companies with good market share, good growth potential that is in line with or better than the industry, and has consistent profitability.
Q) After a sharp rally (almost vertical move) seen in the small & midcaps, smart money has started moving towards the IPOs or largecaps? What are your views?
A) The smallcap and mid-cap indices outperformed the largecap in FY21. Now investor-focused towards IPOs as most of the IPOs had multifold oversubscriptions and nearly all IPOs were priced at the upper end of the price band.
The primary market has been good so far and the street is abuzz with more issues being lined up but one should consider financial performance and stability in business before investing in IPOs.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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