Are Small-Cap & Mid-Cap Funds Still In The Race?
Dalal Street Investment Journal|November 22, 2021
History suggests that small-cap and mid-cap companies tend to grow faster than the large-cap universe in an economic recovery scenario. Hence, we can expect companies from this category to register robust earnings’ growth as we go forward, further supported by a lower base. The article explains this particular phenomenon and provides guidelines to investors
Are Small-Cap & Mid-Cap Funds Still In The Race?

The broader equity market in India has witnessed a vertical rise in the last 18 months. In August 2021 we saw this rise in small-cap and mid-cap stocks coming to a screeching halt after gaining 48 per cent and 23 per cent for the year, respectively. The reason for such a fall in these categories of stocks was largely driven by the introduction of new surveillance rules by India’s oldest stock exchange, the BSE. This was introduced to maintain market integrity and curb excessive price moves. It caused panic among investors and there was sell-off in these categories of stocks. Although at the index level there was not much movement and BSE Mid-Cap and Small-Cap indices saw a fall of between 2-5 per cent after the announcement, many stocks saw a fall of more than 20 per cent.

Nevertheless, soon a clarification was issued, supporting the price. This led to underperformance of the broader market compared to the large-cap-dedicated stocks by a margin of 5 per cent. This was probably the first time in the year we saw them underperforming on a monthly basis. The chart below shows the performance of BSE 100 representing large-cap, BSE Mid-Cap and BSE Small-Cap for the last one year. It clearly shows the dip in August.

Diese Geschichte stammt aus der November 22, 2021-Ausgabe von Dalal Street Investment Journal.

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Diese Geschichte stammt aus der November 22, 2021-Ausgabe von Dalal Street Investment Journal.

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