Correction in Smallcap Index – Time to Recall optimism and Add more?

August 24, 2021 | Industry Insights

Dear Investors,

One should understand that the fluctuations in the markets are inevitable and one cannot expect linear returns in Equity Market. Market returns are cyclical in nature which are caused by corrections and fluctuations in the market are followed by a phenomenal wealth creation journey. The lull period is the time to accumulate good quality companies that have earnings visibility and managed their capital efficiently and are available at reasonable valuation and there is an opportunity to make huge returns in the subsequent period.

Correction in the market?

The year 2021 was absolutely one of the best years for the small and mid-cap sectors. Small-cap Index has Year to date (YTD) rallied around 35%, supported by strong earnings growth in many sectors.

In the last few days, we have witnessed a reasonable correction (10% in the Smallcap index and 15-20% in few good companies) in the small-cap companies after a long time. If we check on long-term chart correction is not very big. But, we believe this is a good opportunity to start adding some lump-sum amount in the portfolio or increase your SIP amount for the next few months.  E.g. if anyone has a spare amount of Rs. 10 lakh, then he can deploy Rs. 2.5 lakh.

Nifty Smallcap vs Niveshaay Smallcase Portfolio

Before this correction, we were guiding everyone to invest in SIP mode only. Now with ongoing correction, we changed our view on the market and believe this is a good time to add some lump-sum amount to the portfolio or increase your SIP amount for the next few months.

We firmly believe that our investment thesis remains intact and we believe that in the long run, our invested companies have the potential to deliver better risk adjusted returns.

In India especially, there are a lot of opportunities to find such companies as the management doesn’t explain its business very evidently. So, the probability of mispricing is very high. This is the time when one needs to remember the basics of investing to keep patience and slowly build a portfolio with a long-term view. Overall, we believe that we have a good set of companies in our portfolio and also a lot of quality companies have come down at reasonable valuations, these can perform well in the future with a 2-3 years investment time horizon.

Thank-you for choosing Niveshaay! We are glad for the trust you placed in us and are committed to provide you the best of our services. Thank-you for your continued interest and support towards Niveshaay.