Steep Fall in the SmallCap Index from Record Highs Unlocks Opportunities

SmallCap Index is down by 12% from a recently hit record high on 15 January 2018. The correction was long overdue considering the run-up of stocks in the small cap space. The price/ earnings (P/E) ratio of the small cap index had recently touched an insane level of 111 times- the highest ever. With huge domestic inflows into the mutual funds and SIPs, the index was on a roll unit the recent correction.

The smallcap index had started correcting post its record high on 15 January and a massive blow came in on the day of Union Budget i.e 1^st February wherein the index corrected by 4.6%.

On the day of Union Budget, there was a bloodbath in the junk small caps. However, quality stocks fell at a much slower pace. Let's compare the fall in the prices of quality and non-quality smallcaps from the record high on 15^th January 2018.

Quality Smallcaps

Source: ACE Equity

Junk Smallcaps

Source: ACE Equity

You can observe from the table that the quality smallcaps fell at a much slower pace when compared to the junk one's. Infact they fell at a pace which was lower than the 12% index correction.

Conclusion: Despite smallcap index being expensive, there are opportunities in this space which one should keep exploring which has the potential to multi-fold your investments. Quality smallcaps will protect your downside risk even at the time of a big crash and over the long term will help deliver good returns.

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The stocks of Ashina Housing, Avanti Feeds, Bank of Baroda, BPCL, GMDC, Kitex Garments, Marico, MOIL, Sanghvi Movers, Suzlon, Tata Steel, VST Tillers are expected to be in the news as they declare their results for the quarter ended December 2018.

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