BIG TRIGGERS FOR SMALL- CAPS

The year 2020 has been a great one for those investors who have shown a preference for broader markets. The overwhelming performance of small-caps aided by SEBI’s guidance of reshuffling of multi-cap mutual funds has triggered interest in small-caps afresh. Geyatee Deshpande analyses the performance of small-caps while Yogesh Supekar shares why it makes sense to allocate more capital to small-caps in the current environment

- Yogesh Supekar

Fantastic is how the small-caps performance has been in 2020. Actually, the overall markets, including the large-caps, have shown tremendous recovery this year. The Sensex is up by 33 per cent since the March lows. BSE Mid-Cap index and BSE Small-Cap index are up by 35 percent and 40 per cent since their March lows. There has been a visible outperformance in mid-caps and small-caps in the past few months. And if the recent outperformance in small-caps is not exciting enough for investors, bulls have been provided additional fodder in the form of SEBI’s diktat to the mutual fund industry to increase allocation to mid-caps and small-caps in the multi-cap mutual fund category.

This announcement by SEBI is expected to create fresh liquidity of about ₹40,000 crore for mid-caps and small-caps. In fact, small-caps are expected to get a lion’s share of this fresh allocation as they have low allocations in multi-cap funds at this point of time. The positive sentiment in small-caps is expected to cheer up retail investors big time. Retail investors usually show preference towards small-caps on account of the perception that small-cap stocks generate large returns in quick time. Says Sagar Punjabi who has been investing in markets since 2000, “In my demat account I purchase only small-cap and mid-cap stocks. At times I take position in micro-cap companies for aggressive returns.”