Intermediate stocks and small stocks are heading for the wrong reasons. Everyone feels the excess pain created last year. What is your feeling? Do you think we are nearing the end of decline, or are there still bubbles in the system?
Summit Baltac: Midcap and Smallcap are quite vast universes. Therefore, any indications below 1 Rs are mid-caps, and any ones below 30,000 crores are small. So there are probably around 4,500 companies in the small cap basket, and unfortunately what has happened over the past few years is that smaller stocks result in greater gains, with many investors investing without digging into the company in depth. Masu. , because we were looking at promoters and business models, stocks were moving so quickly that we invested first and then looked into the philosophy that followed, so it was pretty common. More importantly, transactions like IPOs before IPOs were about the future of companies like Excel. Pre-IPO and all forecasts were 4-5 times the next 3-4 years.
And when thousands of companies project this kind of growth, that’s not possible. So many operators are probably active, and small businesses with many prices active have a lot of bubbles in their market.
But again, if you’re just looking for 15-20 stocks, there are many opportunities that are emerging.
For me, it’s about what your long-term return goal is. If you are targeting a 20% Plus Plus target, it is almost impossible to create it in Largecaps.
Therefore, the only way you can find revenue growth companies over 20% is mostly in small and intermediate areas. So, we can’t take a basketball approach here, but it’s all about finding companies specifically, betting on promoters, finding the best companies in the industry, and gaining market share. These are companies in very harsh bad markets. The tide has raised all the boats, and it is very difficult to distinguish which boat is the right boat to ride, and that will continue to be an important part of the future.
I don’t think the whole universe has been fully modified. From an evaluation standpoint, there is still a lot of bubbles left.
But if you’re a good stock picker, that’s the market for the future. The percentage of companies breaking a BSE 500 or equal weighted BSE 500 index is violating a regular BSE 500, with a weighted average index above 50%, but it cannot last long.
After a long time, that percentage of companies have now fallen at 30%. Therefore, in this market, the outperforming universe will shrink significantly, as 70% of companies do not break the index.
So now it’s important to bet on promoters and stocks rather than bet on the entire sector or theme.
However, historically, I have seen that when you are classified, the market always tends to classify you in terms of market capitalization. So there are times when largecap works and smallcap works. There are times when the midcap works. If the cycle is working, there are few exceptions. So, what you’re flagging for our audience is that it’s great to look for good companies and not be attracted or trapped by this market capitalization phenomenon and not generalize everything. . But that is a cycle that we have to consider. Because it’s a cycle that we have to consider when they tend to fall below performance when the cycle is against. Similarly, Largecap has great business that tends to outperform even when the cycle is working.
Summit Baltac: No, that’s totally true. Because all mutual funds are consistent in the same way, so mid-cap, small-cap mutual funds, and they are mobile entities in the market. So it’s a vicious cycle.
If a particular mutual fund or a particular theme works, there will be a large influx in that kind of fund, and small and medium sized spaces are very illiquid, so you will get an influx, but you will have a stock yourself You can earn money. Then run the inventory and get outperformance.
And when outperformance occurs, especially in the middle and small spaces, the cycle continues, mainly due to fluidity, and then the ratings rise, which is what has happened in the last few years.
And from now on, investors may begin redemptions, some of these themes will be sold, and then performance may begin to decline. And with poor performance, once again, investors start to try and get money from it.
So I believe this space, small size, and midcap is a space where funds must be much smaller. Otherwise, you will lose the flexibility to come and go.
And when you are forced to go outside, when there is redemption, who is going to buy, you have no control. Because whenever there is a downtrend, buyers can disappear from the system and do any kind of stress test.
However, in a declining market, there is absolutely zero liquids, so that’s the problem. Unfortunately, you need to go through these cycles. This is not the first time. It happened between 2008 and 2009 and again in 2011. It happened in 2015-16.
It happened in 2018-19. In other words, 18-19 was one of the most brutal cycles for the small and intermediate caps. Again, people piled up on it from 2016-17 until the peak of the cycle, then saw what kind of performance they experienced.
But again, indexes perform poorly. But if you’re a good stock picker, it’s all about picking stocks in small and mid-cap, as your portfolio continues to rise even at that time. In the long run, looking at the last 15 or the last 20 years, the small and medium cap indexes have not beaten the Large Cup index.
So, if you are betting on the entire universe, you should keep in mind that you won’t beat the index and will at the same time increase your volatility.
Therefore, the same returns as high risk is not worth the bet. But if you’re a good stock picker, it’s the only space where you can get that 20-25% return.
Also, small and midcaps have outperformed significantly, like the UP cycle from 2020 to 2024, or the 2009 to 2011 upcycle.
So, for example, small and medium caps have many circular stocks. So, like the cycle between 2020 and 2024, cyclical inventory rose 10 times, and then high quality inventory rose 2 times. Therefore, there is a great outperformance in the short term.
So, anyone who can play the cycle really wishes good luck. But in the long run, just because I’m investing in small or midcaps, I can’t expect to win the market.
