Devina Mehra feels THIS is the reason why you should book profit in micro, smallcap stocks

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₹5,000 crore.Mehra highlighted the risks associated with investing in microcap and smallcap stocks in an exclusive interview with Mint. She said microcap and smallcap stocks can be very volatile and difficult to manage due to the lack of effective risk management tools like Nifty options and stop losses."I certainly think that if you look at microcaps and stocks below ₹5,000 crore market cap, there is more than a little froth there, and investors should limit their exposure there.

It is also because risk management measures do not work well for this segment as neither can you hedge those via Nifty options (as those stocks do not necessarily move with the Nifty), nor do stop losses work well here as the stocks can fall very rapidly without allowing you to sell," said Mehra.Also Read: Expert view: Indian stock market not in a bubble, still below the long-term trendline, says Devina Mehra of First GlobalEquity benchmark Sensex has gained over 21 per cent in the last one year. On the other hand, the BSE Midcap index has surged 63 per cent, while the BSE Smallcap index has jumped 59 per cent in the same period.Mehra observed in the case of a bust in the smallcap space, several stocks from the segment never came back."In every small cap bust, hundreds of stocks disappear, never to come back again.

The Smallcap index fell 78 per cent in 2008-2009 and did not recover those levels for eight years. Even though the index crossed those levels in 2016, the composition was completely different.

Many stocks that fell never came back. After a one-and-a-half-year boom, there was another two-thirds fall in the Smallcap index," said Mehra.Short periods of boom in the small-cap space may lure many investors, but Mehra points out that