Small-caps: Pockets of opportunity or minefields on the equity bourses? 5 experts weigh in
small-cap segment going forward. Certainly, you have the ability to make a ton of money if you hit the (buy) button at the right time. Equally too, be prepared to lose money (and your hair).
“Over a long-term cycle, companies in the small-cap space have the potential to deliver a larger return on investment than large caps. But equally too they have the risk to fall more than large caps from their peaks," says Anil Ghelani, Head – Passive Investments & Products, DSP Mutual Fund. Small caps are stocks listed on the exchanges that have a market capitalisation of less than ₹5,000 crore.
To illustrate, this year, the broader large-cap markets like the Nifty 50 Index is up by ~18% whereas the NSE Smallcap 250 Index is up by 46%. “In the current scenario, the risk-reward equation appears more favourable for large-cap indices compared to their small-cap counterparts over next year," says Pankaj Shrestha – Head Investment Services, Prabhudas Lilladher Wealth. So does this mean that the investor should give small caps the miss? No. They still have the potential to deliver returns, going forward.
“We may see a movement of 12-15% in small cap space over the next 1 year as we feel the earnings are likely to grow at 14-15%. Additionally, the drop in raw material cost will further benefit the bottom line (of small-cap companies in context)," says Amar Ranu, Head - Investment products & insights, Anand Rathi Shares and Stock Brokers. The key differential over here is pockets of opportunity and outperformances. “Small and mid-cap space is where one can hope to gain alpha (make profit) and hence stock wise moves and outperformance can happen through the year," says Deepak Jasani, Head of Retail Research at HDFC Securities who however
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