It is day like today when all the indices are trading in red and the leading the fall are mid and small-cap indices, and market breadth is extremely that a large number of investor look at their phones to check how is their portfolio doing, In all probability a large majority finds the decline in their portfolio is more than what Nifty has suffered and that where the doubt and question come to mind. Now two things, especially for those who have turned bulls in the last few months. First nifty or for that matter any indices have nothing to do with your portfolio, so stop comparing them. Second, do a review of your portfolio and ask yourself one simple question: why did I buy this particular stock? Was it friendly neighborhood advice or was it because there was something positive happening in the company or the industry in which this stock belongs? The answer to this question is the key to whether one should stay invested or sell the stock.
India Inc s December quarter earnings showed weakening profit momentum at an overall level but we filtered out a list of 16 smallcap companies which reported over 100% growth in sales and profit on a YoY basis. Waaree Renewable Technologies, Advait Infratech, Cressanda Railway Solutions, and Swelect Energy Systems were among the top performers. 14 out of 16 of these stocks have already given multibagger returns in last one year.
The Nifty SmallCap 100 is trading at a high P/B value of 6.7, and at least 128 smallcap multibaggers are trading above their 5-year average PE level. Companies in sectors like chemicals, consumer durables, energy, IT, and BFSI are overheated. The recent Q3 earnings season has added to concerns about expensive valuations for PSU railways, defence, and power stocks.
In the stock markets, knowing risk and managing the risks are two different things. Managing the risk is more complicated than it appears as it involves more hard work and at times going against the narrative prevailing on the street. At this point of time, valuations in the small cap segment of the market are extremely high is the risk. How many are thinking of managing it ? Now there are two ways to manage this risk. First keep your exposure low in this segment. Second, if one is still looking for an increase in exposure to small caps then put more checks and balances before buying the stock. Look at some key financial ratios and also do some hard work by reading annual reports before buying any stock. How will this hard work help in managing the risk? Higher probability of lower drawn down in a corrective phase. Yes, only higher probability. ET screener powered by Refinitiv’s Stock Report Plus applies different algorithms & filters to all BSE and NSE stocks, and lists stoc
Lower oil prices, softer inflation, better than expected GDP numbers, clear indication of interest rates coming down, policy continuity and finally strong price action by the bulls. There are many reasons for the current state of the smallcap segment. Whatever the conditions or tailwinds, one basic principle should never be forgotten. When it comes to equity as an asset class, smallcaps are always the riskiest place to take exposure so always be cautious. On the other hand, if one can find right smallcap stock at the right time, gains are much higher. But it is not an easy task to find the right stock. ET screener powered by Refinitiv’s Stock Report Plus applies different algorithms & filters to all BSE and NSE stocks and lists stocks that fulfill the various criteria as specified in the algorithms & filters to find those that might help navigate the market.