The market paradox: Has the cheese moved?
The current market paradox has got a lot of investors wondering, ‘who moved my cheese?’
The simple, but painful answer to that is – the smallcaps.
While Nifty continues to create all-time highs, it’s difficult to believe most investors haven’t seen the greens in their portfolios. The truth is, even though most investors might deny it, almost everyone is exposed to the ‘high risk-high- return’ smallcaps and the small and midcaps have continued to languish.
Two third of small and midcaps are still 20-75% lower than their peaks, while only 9-10% of large caps are significantly lower than their highs, in spite of their poor Q2 and half-year performance.
What caused the cheese to move?
While the smallcaps are serious wealth creators, they are also a risky asset class. This means as volatility brews the world over, investors prefer moving to safe havens like the largecaps and bluechips.
During 2020 and 2021, many smallcaps saw good run-ups, which might have led to some amount of profit booking in them.
Apart from this, FIIs had stayed away from the Indian markets for some time. Their re-entry into the Indian markets, especially banks have led to the performance of the index. In November the FIIs’ net purchases were worth Rs 22,500 crore, which was visible in the index.
Where does this leave us: is it time to bring back the cheese?
In the words of Warren Buffet, “be greedy when others are fearful”.
There is a certain amount of fear in investors currently, as the index touched all-time highs, and the smallcaps continue to be perceived as risky given the global volatility.
In spite of the volatile raw material prices leading to destocking, lower volumes, and subdued margins in Q2, the small caps outperformed the large caps and the index operationally.
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