The one big investing theme you should focus on in the market today

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Subscribe to enjoy similar stories. Smallcap stocks are gasping for air. A mix of economic uncertainties, earnings pressures, and relentless FII outflows has sent them into a tailspin, wiping out recent gains.

With no clear bottom in sight, investors are left wondering: Is this just a correction—or the start of something bigger? History might have some answers. The table above captures previous peaks of the BSE Smallcap Index, the extent of its declines, and the time taken for the index to recover to its previous highs. In the last two decades, the recoveries have taken 3 to 4 years (January 2018 correction) and even 10 years (2008 correction).

While this may be unsettling, my long-term view on smallcaps remains positive. Smallcaps are the cogs and wheels that will help the economy and bigger companies running, and hence will remain not just relevant, but crucial. Looking beyond the near term, a selective and patient approach to small-cap investing—focusing on business quality and margin of safety—can lead to strong outcomes.

A huge number of the listed companies are smallcaps. Thus, irrespective of the correction, there is always value in some businesses for those who scratch the surface. This universe is growing with more companies coming to the markets through initial public offerings (IPOs).

Smallcap offer a good number of options to choose from in terms of themes and megatrends. For instance, until a few years ago, small-cap stocks were a prime hunting ground for investors seeking exposure to sectors like travel, tourism, hospitality, and the burgeoning financialisation of savings. Both BSE and CDSL, the multibagger stocks of this decade, belonged to the smallcap space until a few years ago.