There is a fair amount of “garam hawa” blowing on how the small cap segment specifically and maybe the mid cap segment too could be under “extra stress” and maybe in the next decade or so there is no upside possible. This has led to a clamour amongst investors that exposures in these two categories should be pruned drastically and perhaps be reduced to nil.
The darlings of the investors till some time back, these two capitalisation categories, seem to be doing an about turn in their fortunes and by extension to the wealth of the unit holders and/or the scrip holders. So, what should one do??? Do we hold or let go off?
When things turn sour, there is of course historical evidence that the small cap corrected far more than the narrower Nifty 50. When things turn sour, there is of course historical evidence that the small cap corrected far more than the narrower Nifty 50. And this south bound journey is the elephant in the room that must be addressed.
The small capitalised companies are those companies that have relatively narrower ownership and thus smaller relationship with the investors. These will not even pass muster with reasonably deep pocket domestic investors let alone bigger institutions or for that matter foreign portfolio participants. The bulk of their association is with the mango people
and mutual funds. Now mutual funds sell products as much as say Nestle or Unilever does. So whenever the going is good for a particular savings/investment category, one would expect these companies to make money. And they walk the extra mile to launch a scheme to match the flavour of the season and there is no point in ascribing a moralistic viewpoint. But the decision to be invested or not invested remains with us. Normally we don’t dive into a bar every time we cross one, do we? Understanding the risk – return trade-off is very important. If you are in for the gravy, you must be in for the grease.
By definition, this category of scrips is very volatile and sees fluctuations every day. So much so that index constituents change monthly. So keeping track is a tougher ask for the lay investor. But if I have decided to be in equities and that too
in a high vix (volatility index) segment, it perhaps says I am ready to make volatility my friend. And this friendship can only flower if I have my most important weapon – time!!! If not, this is like walking the knife’s edge. In which case, the journey is designed to end in disaster. As in the case stated above on the worst period, let us see how profitable it has been, if one stayed invested.
