Small-Cap Stocks

Investing in small-cap stocks is in vogue globally as small-cap stocks are considered long-term investors' best friends. Yogesh Supekar and Tanay Loya hunt for the best small-cap stocks available for investment at the current juncture and recommend staying invested in them for the long term.

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Sensex is up by nearly 14 per cent over the past one year and is trading at 18.6 times its projected earnings. Nifty has moved from 20.95 P/E multiple to 25.89 over the past three years. With corporate earnings yet to see signs of revival, majority of analysts believe valuations are on the higher side. While valuation concerns and global geopolitical tensions are affecting the market moods, small-cap stocks continue to impress investors with their performance.

Small-cap investing is again the talk of the town as the category continues to outperform its peers on the Indian bourses. Well, we observe that the trend is global and not restricted to India. The small-cap equity as an asset class has outshined all the other asset classes on multiple year basis.

Popularity of mutual fund investing has a lot to do with the liquidity in the markets today. Lack of investment choices are driving many investors towards mutual funds in India. Balanced funds, small-cap funds and mid-cap funds are amongst the most popular categories of mutual funds with investors in recent times.

The rebalancing of asset allocation of Indian investors is in progress and mutual funds are its biggest beneficiaries. With mutual funds being one of the biggest beneficiaries, small-cap stocks become a natural beneficiary indirectly as the fund managers deploy the new funds in high growth small-cap and mid-cap stocks. We can say that retail investors' continuous buying of equity via mutual funds has pushed the equity valuations higher.