Since Jan 2018, Nifty and Sensex delivered positive returns of 10% and 8% respectively, BSE small cap index slumped 31%, while BSE mid cap index dropped 20%. Though these numbers tell us what the overall index lost, individual small and mid cap stocks were touching 52-week lows every other day and individual damage to most of the stocks in this category was to the tune of 50-60%, some even more than that.
Despite that we are quite excited about opportunities emerging in small and mid cap space. You may argue that most of small caps and mid caps have wiped out your hard earned gains over last 2 years. In fact those who invested in small and mid caps in past 2 years are sitting on significantly higher losses and may be thinking to stay away from them.
However, we beg to differ. We firmly believe that these are the opportune times to invest in broader markets and not in large caps. The negative sentiments around small and mid caps have brought excellent businesses down to historically low valuations. The fall in stock prices of many small caps and mid caps by more than 50% from their peaks has not happened for the first time. This has happened in past and companies with good business fundamentals have always bounced back strongly.
Staying invested may be easier said than done when the markets are in bear grip, but it is a necessity for long-term wealth creation. Patience will pay rich dividends to those investors who learn to weather the storm. In fact, investments made in right set of companies during bad market conditions rewards long term investors in much bigger way.
To make our readers understand the benefits of investing in small caps and mid caps during bad times like we are experiencing now, we have released - Multibagger Small / Mid Caps and Long Term Investing Report recently on 10th July 2019.
The objective of this report is to make our members understand why its utmost important to invest in equities keeping a real long term view and becoming a discipline investor by investing in equities during good as well as bad times. We are confident that this report will reinforce your believe to stay invested during these turbulent times in broader markets and build your conviction further encouraging you to invest in small and mid caps with good business fundamentals.
Broadly, Multibagger Small / Mid Caps & Long Term Investing report covers:
1. 6 Major Reasons for Decline in Small & Mid Caps
2. Budget 2019 - Steps towards easing Liquidity Crisis
3. Benefits on Investing in Small & Mid Caps during Bear Phase
4. The Bulls, The Bears & The Farm
5. Long Term Charts of Small & Mid Caps (Hidden Gems & Value Picks stocks)
6. Release of Special Report - Potential 5-Bagger in 5 Years in July 2019
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6. Companies with Pledged Shares: The fear around companies with high pledged holding began after promoter of Essel Group failed to bring fresh shares as collateral to make up for the slump in prices of the group stocks. Later, the shares of ADAG companies, Suzlon, Jain Irrigation, Cox & Kings witnessed heavy selling as some lenders dumped their stock in open market due to unbearable debt and default on payments. Institutions wish to stay away from companies where the promoter has huge borrowings against the shares as there is fear that these companies are in a vulnerable position. Banking & financial stocks like Yes Bank and DHFL continue to hit new lows on fears of default and contagion risks.
Coming back to the current situation, the BSE small cap index is down by 31% from its peak made in January 2018. The liquidity crisis in NBFCs, the DHFL and IL&FS defaults, series of rating downgrades by rating agencies, lenders dumping stocks of debt laden companies have taken the steam out of small caps. Fear and misinformation has shattered investor’s confidence and hence quality businesses are back to cheap valuations.
To ease NFBC liquidity crisis and get economy growth back on track, Government is in process of taking all possible corrective measures. In Budget 2019, Finance Minister Nirmala Sitharaman announced that the government will provide a one-time six months partial credit guarantee to public sector banks to buy high-rated pooled assets worth Rs 1 lakh crore from NBFCs. This will provide the much-needed liquidity to NBFCs, they can thus liquidate their portfolio and meet their liabilities in a timely manner.
Moreover, below are the few announcements made in the budget which certainly qualify as steps in the right direction.
- Recapitalisation of banks to the tune of INR 70,000 crores
- The Credit Guarantee Enhancement Corporation to be set up in FY20
- The action plan put in place to deepen the market for long-term bonds
- 2% interest subvention for all GST registered MSMEs
The Bulls, The Bears & The Farm
A bull market is when everything in the economy is great, people are finding jobs, gross domestic product (GDP) is growing, and stocks are rising. Things are just plain rosy! Picking stocks during a bull market is easier because everything is going up. Bull markets cannot last forever though, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is optimistic and believes that stocks will go up, he or she is called a "bull" and is said to have a "bullish outlook”
A bear market is when the economy is bad, recession is looming and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".
The Other Animals on the Farm - Chickens and Pigs
Chickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securities or get out of the markets entirely. While it's true that you should never invest in something over which you lose sleep, you are also guaranteed never to see any return if you avoid the market completely and never take any risk.
Pigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies without doing their due diligence. They get impatient, greedy, and emotional about their investments, and they are drawn to high-risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the pigs, as it's often from their losses that the bulls and bears reap their profits.
What Type of Investor Will You Be?
There are plenty of different investment styles and strategies out there. Even though the bulls and bears are constantly at odds, they can both make money with the changing cycles in the market. Even the chickens see some returns, though not a lot. The one loser in this picture is the pig. Make sure you don't get into the market before you are ready. Be a long term discipline investor and continue to invest systematically during bull as well as bear phase of market cycle and never invest in anything you do not understand.
Many retail investors started investing in small and mid cap stocks during bull phase of broader market (2014 – 2017) and getting worried now about their investments looking at losses they are bearing due to carnage in stock prices during ongoing bear phase (2018 – 2019). Those who believe they made a mistake by investing in small and mid caps and think to exit booking losses due to fear of further loosing hard earned money, do think about this old stock market saying: "Bulls make money, bears make money, but pigs just get slaughtered!"
We strongly believe that ongoing bear phase in broader market is a great time to buy good quality small and mid size companies that have been beaten down. No one is talking about small caps these days and that’s the strong reason why we should invest in this segment. It’s wise to be greedy when there is fear surrounding small and mid caps. This is not the first time small caps have fallen out of favour and then gone on to recover smartly.
The correction has given investors an opportunity to sieve through and find good quality stocks which are backed by strong balance-sheet and robust cash flow. The broad underperformance of the small and mid-caps seems to be overdone and interesting bottom-up opportunities are now available in this space across sectors. Earnings revival could also set the ball rolling in terms of re-rating these categories of stocks.
Stay Invested & Keep Investing for Real Long Term. Bcoz "If you want your Money to Grow, Equities is the only Way to Go"
We are pleased to inform you that you can grab discount upto 30% and valuable freebies on our subscription services under Saral Gyan 9th Anniversary Offer. We suggest our members to consider current situation (post severe correction in small & mid caps over last 18 months) as a buying opportunity and invest in high quality small and mid cap stocks.