Small-cap crash: 20-stock portfolio strategy
Subscribe to enjoy similar stories. The dreaded mid-cap and small-cap correction is finally here. After closing at a record high of 57,703 on 11 December 2024, the BSE SmallCap index has tumbled to 45,157 in just over two months, a fall of almost 22%, thus putting it in the category of a bear market.
Individual stocks have taken a much worse beating, some even falling by as much as 50%. Opinions on what the market will do next and what should be the next course of action are extremely divided as expected. Some anticipate the markets will fall further, while others believe that this could be a good time to start accumulating fundamentally strong small caps.
The current correction takes me back to July 2018 when the BSE SmallCap index entered into a bear market for the first time after crossing 20,000. The situation then was similar to the situation right now when the index has entered into a bear market after reaching a lifetime high. Now, suppose that someone wants to take advantage of the current fall in the small-cap index and wants to put together a portfolio of 20 stocks for the next three years.
Should she do so? Besides, what kind of stocks should she have in her portfolio? In all honesty, while history does not repeat itself in the stock market, it certainly rhymes. Hence, it will be a good idea to check out how a portfolio of 20 stocks would have done over the next three years in a similar bear market in the past. I just alluded to the bear market of July 2018, where the BSE SmallCap index crashed more than 20% after crossing a lifetime high of 20,000.
Well, let us use this bear market as a case study to determine whether it makes sense to invest in the small-cap index after a 20% fall. Here's what I did. I put
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