Navigating the risks and opportunities in mid and small-cap stocks: Expert insights

livemint.com:

equity market universe of India, mid-caps and small-caps have had a good run-up this year in terms of pricing or share value. This run-up presents both a threat and an opportunity. Mainly, if you can read the economic tea leaves and know your investment priorities, the shoals in the mid-cap and small-cap ocean can be navigated.

“Small and mid-cap stocks have outperformed large-cap stocks in the recent past," says Anurag Jhanwar, Partner and Co-Founder, Upwisery Private Wealth, leading to many investors increasing their allocation to these asset classes. “Both small and mid-caps witnessed an almost unhindered rally between March and September this year," says Mayank Bhatnagar, Chief Operating Officer, FinEdge. It was only natural that the rally would see a retracement, which happened in September and October.

After such a fierce rally, a retracement is not just a natural phenomenon but healthy for the overall markets, as it allows new participants to enter the markets and prevents a bubble from forming. To be sure there are certain trends that may be interpolated, from market movements. The recovery period has been strong so far and it seems like markets needed a reason to take a pause, catch a breath and start again.

The length of that pause/snooze seems to be intricately linked to multiple global headwinds that have come about, unexpectedly. In a relatively bleak global macro picture, the Indian economy seems to be standing tall and the Indian markets are holding strong even under consistent FII selling pressures over the last few months. “The companies and sectors that showcase a strong quarter of results might be the least affected (by negative trends) and vice versa," says Jhanwar.