BSE midcap and smallcap have tumbled over 13% this year. Should you buy them now?

BSE Small Cap Index

BSE Mid cap Index

 

 

 

 

 

 

 

The BSE Midcap and Smallcap indices started falling in January 2018 and have plunged 25.7 and 36.5 percent respectively since.

Domestic retail investors prefer to invest in small caps and mid caps, therefore factors affecting Indian markets negatively will always result in decline in these two indices. On the other hand, large caps are generally bought  by foreign investors heavily as a result it takes longer and bigger concerns for this index to fall.

As long as Indian market sentiment remains under pressure, retail investors will continue to sell in mid and smallcaps, casting a pall of doom on the two indices.

An Equirus Capital report stated that relative valuations indicate that mid and smallcap underperformance is unlikely to continue which has led them to give higher weightage to small and midcap stocks in their portfolio.

Though the broader markets are starting to see a recovery, largecaps remain the preferred choice for investors. From a strategy perspective, Equirus recommends going overweight on our small and mid-cap as well as on sectors like BFSI, pharmaceuticals, and metals.