Small Cap Stocks Correction: Due to the strong rise in smallcap stocks, the smallcap index has seen a tremendous jump. Since April 2023, BSE Smallcap 250 has been witnessing a one-sided rise. But SEBI registered portfolio managers found in their study that the smallcap index may fall due to the earnings of these smallcap companies remaining consistently flat.
Do not invest excessively in small cap stocks
Capitalmind Financial Services Private Limited has studied the data for the period between 1 December 2017 to 11 July 2024. The company has issued an advisory for investors investing in small caps. 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 creating a better portfolio which will be able to face any storm and it will be better to stay invested for the long term.
Small cap stocks are the most volatile
According to CapitalMind, whenever the market falls, the most volatility will be seen in smallcap stocks as compared to largecaps. He said, the market moves like a cycle, so there is a need to give enough time to your portfolio. One should stay firm during bad times so that when good days come, better returns can be obtained.
It is important to choose good stocks
In its advisory, CapitalMind said, apart from largecaps, it is important to buy good stocks as well. Just buying the index will not work. This is the reason why among mutual funds, smallcap funds which are being actively managed are performing better than the index. Whereas active largecap mutual funds work like the index.
Investors should prepare their portfolio
CapitalMind said in its advisory to investors, “We believe that a diversified portfolio is the best option for long-term investment, especially in the case of smallcaps. Therefore, it is better to either invest through mutual funds or create a portfolio of 20 smallcap stocks.”