During downturns quality stocks truly survive, thrive

Front-line indices have tumbled over 10 per cent from their recent peaks in the past few weeks. SAAHIL MURARKA, managing director of Batlivala & Karani Group, tells Puneet Wadhwa in a conversation that it may not be the wrong strategy to invest when the markets are at a high, provided investors continue to stay invested and employ cost-averaging techniques. Edited excerpts:

- SAAHIL MURARKA, MD, Batlivala & Karani Group

You specialise in the small and midcap (SMID) segments as a research house, and these two segments have been hit the hardest in the recent market fall. What's your take on this?

When dealing with the SMID segment, investors must appreciate that returns accrue in cyclical bouts. Historically, unlike the largecap segment, which shows greater performance stability, we have seen sharp rallies propelling returns in these two segments.

Over the past five years, most returns for SMIDs were generated between 2020 and 2022, followed by a shorter uptick period in 2023-24. The robust rally seen in SMIDs after 2020 belies the fact that the SMID segment yielded flat to negative returns in the five-year period preceding 2020.

Again, all this analysis is at the index level. Such rallies often lead to momentum in most stocks within the segment, regardless of the underlying growth story or business model. It is only during downturns that quality stocks survive and thrive.

Is there a crisis of confidence now among retail investors?