Buy, hold, or sell? Let fundamentals guide decisions

Over two-thirds of mid and smallcap stocks on the National Stock Exchange (NSE) have entered bear market territory, slipping 20 per cent or more from their 52-week high, according to a recent analysis in Business Standard.

- SANJAY KUMAR SINGH & KARTHIK JEROME

Reasons for the correction

High valuations are the primary reason behind the correction in mid and smallcap stocks. "When valuations are on the higher side, anything can become an excuse for a correction," says Jatin Khemani, managing partner and chief investment officer (CIO), Stalwart Investment Advisors LLP, a New Delhi-based Securities and Exchange Board of India (Sebi)registered portfolio management services firm.

The current dip may be attributed to disappointment with second-quarter earnings and an alternative investment opportunity arising from the Chinese stimulus, which prompted foreign institutional investors (FIIs) to withdraw ₹1.25 trillion from the Indian market.

Global factors have worsened the sentiment. "Uncertain global macros in light of the big win by Donald Trump in the US elections also contributed to the correction," says Sandeep Daga, managing director and CIO, Nine Rivers Capital.

State elections-related uncertainty also played a part.