Midcap and Small-Cap Stocks May Fall Reasons Given

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Article posted on: Sat, 28-Sep-2024

Look at this Nifty 50 returns of the last 5 years as of 28-Sep-2024:

Source: Google Finance

Almost all stock market pundits are saying that the stock markets will now fall. The valuations look stretched and may not be sustained.

Usually, I do not follow these pundits because most of the time what they say is for the very short term which no one should be bothered about.

You may have noted that 50% of them say markets will go up in the short term, and the rest say they will go down.

It is better to ignore them and plan your trades as per your research or knowledge.

But this time things are different – almost all of them are saying that the valuations are stretched and do not reflect the actual returns from the companies listed.

Especially the midcap and small-cap stocks have generated returns that are over-stretched and should correct within the next few months. Here are the returns:

Nifty Midcap 150 Index:
As of September 20, 2024, this is the absolute returns:
30.01% for the year to date
47.75% for the last one year
84.99% for the last two years
105.04% for the last three years

Nifty Smallcap 250 Index:
As of September 20, 2024, the returns are 34.56% for six months, and 51.77% for one year.

Nifty 50 Index:
This index had the following returns over the last 15 years:
15 years: 11.8% CAGR

Over the long term, Nifty 50 and other indexes have generated almost the same returns.
So they will converge soon if not very soon.

What you should do?

If you have invested in mid and small-cap stocks then book all or 50% of the profits.

Large-cap stock investors need not worry.

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