Small-cap stocks offer best bet for investors
Tuesday, 6 April 2010
MUMBAI, Apr 5 (Economic Times): In an ever-volatile stock market, it is tough to recall the last time, when the broad based indices - Nifty and Sensex - remained stagnant for the past six months.
Such has been the case with Indian stock market since October last year. Sensex closed at 17,127 on September 30, 2009, and it is still lurking roughly in the same range. That is not the only thing worrying investors, but the fact that Sensex is not really far from its all time high.
And at the same time, many stocks especially in the information technology, banking and pharmaceutical industries have already made their all time highs. That leaves investors confounded as to the future course of the market. In such times, it often happens that a small- or mid-cap stock multiplies in value in a matter of a few trading days.
As investors grapple to find out hitherto lesser-known stocks to boost their investment portfolio, let us see how the mid cap and small-cap indices have done in the current rally. CNX Mid-Cap - benchmark index for mid cap stocks - is up by 165 per cent since March 09, 2009, when the rally started.
In the similar time frame, ET Smallcap - an index of small cap stocks - jumped by 171 per cent. Compared to 117 per cent return posted by Sensex, it is clear that mid-cap and small-cap indices have given better returns. So, bottom fishing in these areas too comes with a warning of caution.
To lend further credence to our hypothesis that bottom fishing can be risky under the present circumstances, we analysed the behavior of large-cap, mid-cap and small-cap stocks in the previous bullrun, which started in 2003 and lasted till January 2008.
We indexed Sensex, CNX Mid-cap and ET Smallcap to 100 by taking their values on January 1, 2003 as the base. The base value of 100 rose steadily over the course of the next four years, as it peaked for CNX Mid-cap index at 964 on January 4, 2008.
Such has been the case with Indian stock market since October last year. Sensex closed at 17,127 on September 30, 2009, and it is still lurking roughly in the same range. That is not the only thing worrying investors, but the fact that Sensex is not really far from its all time high.
And at the same time, many stocks especially in the information technology, banking and pharmaceutical industries have already made their all time highs. That leaves investors confounded as to the future course of the market. In such times, it often happens that a small- or mid-cap stock multiplies in value in a matter of a few trading days.
As investors grapple to find out hitherto lesser-known stocks to boost their investment portfolio, let us see how the mid cap and small-cap indices have done in the current rally. CNX Mid-Cap - benchmark index for mid cap stocks - is up by 165 per cent since March 09, 2009, when the rally started.
In the similar time frame, ET Smallcap - an index of small cap stocks - jumped by 171 per cent. Compared to 117 per cent return posted by Sensex, it is clear that mid-cap and small-cap indices have given better returns. So, bottom fishing in these areas too comes with a warning of caution.
To lend further credence to our hypothesis that bottom fishing can be risky under the present circumstances, we analysed the behavior of large-cap, mid-cap and small-cap stocks in the previous bullrun, which started in 2003 and lasted till January 2008.
We indexed Sensex, CNX Mid-cap and ET Smallcap to 100 by taking their values on January 1, 2003 as the base. The base value of 100 rose steadily over the course of the next four years, as it peaked for CNX Mid-cap index at 964 on January 4, 2008.