Smallcap stocks may fall sharply, CapitalMind warns…?

The smallcap index has seen a tremendous jump due to the strong rally in smallcap stocks. Since april 2023, BSE Smallcap 250 has been witnessing a one-sided rally. But SEBI registered portfolio managers found in their study that the smallcap index may fall due to the earnings of these smallcap companies remaining flat.

Do not invest excessively in smallcap stocks

CapitalMind Financial services Private Limited has studied the data for the period between 1 december 2017 and 11 July 2024. The company has issued an advisory for investors investing in smallcaps. In this advisory, CapitalMind Financial has advised investors to avoid over-allocating or investing too much in small caps. In its advisory, CapitalMind has asked investors not to invest only in small-cap stocks. Prudent diversification through a better strategy will help in building a better portfolio that can withstand any storm and it will be better to stay invested for the long term.

Most volatility in smallcap stocks

According to CapitalMind, whenever there is a fall in the market, the most volatility will be seen in smallcap stocks as compared to largecap. He said, the market moves like a cycle, so there is a need to give enough time to your portfolio. One should stay during bad times so that when good days come, better returns can be obtained.

Choosing good stocks is important

In its advisory, CapitalMind said, apart from largecap, it is also important to buy good stocks. Just buying the index will not work. This is the reason that the smallcap funds in mutual funds which are being managed very actively are performing better than the index. Whereas active largecap mutual funds move like the index.