Smallcap segment can suffer more; time to avoid the sector? Experts weigh in
Nifty Smallcap 100 index tumbles another 2.5%, down over 6% in March so far; here's why Experts see more pain for the smallcap space as its valuation is still very high. "Though it is difficult to guess the quantum, but 10 per cent correction cannot be ruled out. If it happens it would be healthy and bring some sanctity to the exorbitant valuations," said Sneha Poddar, AVP – Retail Research, Broking and Distribution, Motilal Oswal Financial Services.
"The sector is undergoing a healthy correction, especially after the rally of 60-70 per cent over the last one year. Post such a sharp rally, the valuations have got stretched in many pockets with Nifty Smallcap100 trading at over 21 times one-year forward PE (price-to-earnings ratio) which is a 35 per cent premium to its 10-year average," said Poddar. Also Read: Sebi chief flags risk of bubble in stock market Arpit Jain, Joint MD at Arihant Capital also expects at least 10 per cent correction in this space.
"We acknowledge a modest correction within the sector, with the possibility of a 10 per cent adjustment. Additionally, considering it's year-end, profit booking is prevalent among investors, contributing to this correction alongside valuation considerations," said Jain. Trivesh D, COO at Tradejini sees several factors at play behind the correction in the smallcap segment.
"This correction could be driven by a few factors. Firstly, regulatory concerns regarding excessive inflows into small-cap funds raise questions about the ability to maintain portfolio quality due to the limited pool of investible small companies. Secondly, potential regulatory actions to address frothy valuations and the ongoing correction in the broader market are likely to exacerbate the downward
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