Strategic portfolio rethinking can help navigate the changing dynamics of Indian stock market
general elections next year, elevated valuations, a rush in the primary market, and a significant increase in midcap and small-cap share prices have meaningfully changed the investment dynamic. Further, on top of the Russia-Ukraine war, the world is now closely watching the Israel-Hamas conflict and its possible spillover on commodity prices and global inflation. While the Israel-Hamas conflict is still confined to this region and probably not escalating much because of the intervention of the other developed nations, globally, investors have started to price in higher geopolitical risk.
As Warren Buffett once said, "What the wise do in the beginning, fools do in the end." Wise investors today could begin rethinking or restructuring their portfolios and allocations to accommodate the changing dynamics. Generally, small-caps and mid-caps trade at a discount to their large-cap peers, which are much more solid and safer bets apart from the quality and sustainability of their business. But that hardly seems to be true in the current context.
The trailing twelve-month price-to-earnings ratio of Nifty is currently around 23.2 times. In comparison, the Nifty midcap index is trading at 30 times, and the Nifty small caps index is at 25 times. Both mid and small-cap valuations have surpassed the Nifty valuations, which is a growing risk.
Listed stocks in the SME space have gone even beyond. The year 2023 has been a blockbuster year; during this period, the BSE SME IPO index has delivered a staggering year-to-date return of about 57 per cent, far outstripping the 7.7 per cent return of the BSE Sensex. Also Read: KPIT Technologies share price drops over 5% after a sharp rally; analysts see 42% downside on expensive valuations Many
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