The gains seen in mid and small cap stocks for the past few weeks are now in a downtrend. BSE Midcap and Smallcap indices fell more than five per cent on Wednesday. Due to the sharp market rally, investors have started booking profits in mid and small caps. So it has started declining. In early trade on Wednesday, the BSE Midcap index fell 550 points or 2.12 per cent, while the Smallcap index fell 840 points or 2.84 per cent. The question is, what strategy should investors adopt for investing in midcap and small cap stocks.
Careful attitude is necessary for fresh entry in mid and small caps
Market analysts believe that investors should be cautious about fresh entry in mid and small caps at this time. Especially in the fall in these stocks on Tuesday, they will have to adopt this strategy. Investors should wait for a while so that they can take fresh positions in stocks with strong fundamentals. The price correction in mid and small cap stocks is quite sharp as investors are increasingly exiting long positions. Right now it is at an all time high. This is the reason why these indexes are falling down. So far this year, mid and small caps have risen by 47 and 61 per cent, respectively, in comparison to the Sensex and Nifty. But in October, they have grown by only 6 per cent in comparison to them.
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Bottom-up opportunity for correction investors
Sneha Poddar, AVP, Research, Broking and Distribution, Motilal Oswal Financial Services, says that after the sharp rally in mid and small caps, profit booking is now being seen in these as the prices of many stocks are not realizing. However, barring some expensive stocks, the current correction is providing a bottom-up opportunity for investors. With the end of the Corona lockdown and economic activity booming, festival season buying and earlier stagnant demand, investors have got an opportunity to take advantage of the bottom-up opportunity. At present, the balance sheet and cash flow position is good due to cost control and delivery by corporate companies. At present, the direction of the market will be decided by the earnings delivery and earnings expectations in the second quarter of the current financial year.
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