Investing in Stocks: Is It the Right Time to Invest in Mid and Small Cap Stocks

Investing in Mid and Small Cap Stocks
Investing in Mid and Small Cap Stocks

As we entered in 2019, market experts and analyst are started predicting mid and small cap stocks to the investor. Last year after deep correction it is assumed that this year small and mid-cap stocks would give a good return to the investors.

Like any investor, you must have several questions on your mind such as, why suddenly market experts are bullish on small and mid-cap space? Why the mid cap and small cap stocks would turnaround this year? Is it the right time to invest in small and mid-cap stocks, then which stock to buy? Today we will discuss this topic in details and help you to understand all your queries.

After the exponential growth in the Indian stock market in 2017, last year particularly between June 2018 to October 2018, there was a deep correction in small and mid-cap space. The market started correcting immediately after the 1st February 2018 Budget, first, it was in Large Cap stocks and then from June to October in mid and small cap stocks.

The small and mid-caps stocks perform only in the bull market. If there is a movement in small and mid-cap stocks you must understand that we are in the middle of the bull phase.

Also Read: Stock Market Investment 2019: Which one would you prefer Large, Mid or Small Cap Stocks?

Investors mostly preferred large caps because of low risk and steady income while small and mid-caps are selected for high growth. You must have noticed that large, mid and small caps do not rise or fall together all the time so it is always advisable to make a diversified portfolio to see a reduction in volatility.

The Factors which can Influenced to buy the Mid and Small Caps Stocks:

The Market Phase: It is always better to enter small and mid-cap space in the mid of bull market. If market experts are expecting that small and mid-cap stocks will move it is because they are sensing a turnaround of Indian economy and expecting a bullish market phase ahead. A bull market can be expected when there is a stable government, boost in the Indian economy and high growth expectation.

Inflation and Interest rate: The downside of inflation and Interest rate are good for the small and mid-cap stocks. The falling interest rate means the small and medium sectors can get fund at low cost and growth can be increased.

A falling interest rate will attract investors into the equity market, not in bond or FDs. This will ultimately pump more fund into the market and attract new investors.

You must have noticed that RBI has increased the interest rate last year consecutively and after that, the downfall of small and mid-cap space started.

Deep Correction: Till October 2018 we have seen a deep correction in small and midcap space almost 20-30 percent corrected from the yearly high. In some mid and small caps, space stocks were corrected more than 50-60 percent in the span of 4 to 6 months. So after the deep correction whenever the bull phase starts you can start accumulating small and mid-caps stocks into 3 to 4 phases.

The Valuation of Stocks: Another point which indicates that the time has come to enter into mid and small-caps is valuations of the stock. When you find attractive valuation in good quality (fundamentally strong) mid and small-cap stocks after correction it means you should start accumulating that good quality mid and small cap stocks.

Things to remember while buying in Mid and Small cap space:

You can now easily correlate with the above four factors and the present market scenario.Last year there was a deep correction in mid and small-cap stocks, current inflation and interest rate is in downwards. We are in the bull phase and good quality mid and small-cap stocks are at an attractive valuation.

After the Lok Sabha election if the government get the full majority than you can expect a good run in mid and small cap space. You can start accumulating good quality stocks but need to be cautious on below-given points.

  1. Don’t invest all your capital in small and mid-cap stocks, you can invest 20 percent of your fund in mid-cap and 10 percent in small-cap stocks. Diversification of your portfolio can give you good return with minimum volatility.
  2. Invest in selective and fundamentally strong mid and small cap stocks. Always select the dividend paying company and low debt company.
  3. Should always avoid news based stocks. You should not select any small-cap or mid-cap stock which is in news like Rcom or DHFL
  4. Should check the liquidity of the stock, so that you should not get stuck after investing in illiquid stocks
  5. Don’t invest all your fund at a time invest in 3 to 4 phase whenever it comes down.

Also, read: Stock Market Flashback 2018: Top 10 Events of Share Market


If you follow the above points definitely you can expect a good return from the mid and small cap space. Good quality mid and small-cap stocks always have potential to become multibagger stocks. So take the opportunity at the right time and earn a good return from the market.

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Happy Investing!

Finogyan Team


Investing in Stocks: Is It the Right Time to Invest in Mid and Small Cap Stocks Investing in Stocks: Is It the Right Time to Invest in Mid and Small Cap Stocks Reviewed by Finogyan on March 16, 2019 Rating: 5

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