- Date : 30/09/2023
- Read: 3 mins
A recovering economy, investor confidence and growth of companies have caused a rally in mid and small-cap stocks which are outperforming benchmark indices. But is the run poised to end soon. Know what you should do.
Over the last six months, mid and small-cap stocks have been on a roll delivering record-breaking returns. Per the data published by the Association of Mutual Funds in India (AMFI), equity mutual funds saw an aggregate inflow of Rs.20,245 crores in August 2023. Of this, Rs.6777 crores were invested in mid-cap funds and small-cap funds. Moreover, the Nifty small and mid-cap indices are also delivering attractive returns.
- Mid and small-cap stocks and mutual funds have delivered attractive returns in the last six months.
- Increased number of investors, government policies, growing economy, etc. are some of the reasons of the boom.
- For the long-term, specified sectors can be a good addition to the portfolio given their growth prospects.
- For the short-term, investors should be cautious as most stocks are overpriced.
Why are Mid and Small-Cap Stocks Booming?
The mid and small-cap trends can be attributed to the following reasons –
Increased Market Participation
After the COVID-19 pandemic, investors have shown tremendous faith in stock markets with new investors joining the fray.
Government reforms, proactive economic growth and a stable socio-political environment has attracted domestic and foreign investors who are looking beyond large-cap stocks.
Companies have also improved their financial performance making them popular among investors.
The IPO Boom
More than 100 IPOs have been listed between January 2021 and September 2023 belonging to the mid and small-cap segments.
What Should You Do?
As an investor, you should look at both the long-term and short-term horizon. For long-term investors, specific mid and small-cap stocks can be a good addition to their portfolios. These stocks fall in the sectors of engineering, capital goods, realty, railways, banking, etc.
For short-term investors, a little caution is recommended since many stocks are overpriced or at their right valuation. Any correction would erode their capital and so, fresh investments should be held till the prices correct. You can invest in pharma, textiles, IT, financial services and other sectors that have proven their mettle.
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The Bottom Line
Small and mid-cap companies are growing companies which have a higher volatility risk compared to large-cap ones. So, assess the associated risks and return potential and then invest. You can also choose mid and small-cap mutual funds for a more diversified portfolio and bank on the segment’s meteoric rise.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.