Exit small-caps with high valuations and poor basics, say analysts

MF investors must limit allocation to 10% and have five-seven-year horizon

The BSE SmallCap Index has declined 10.1 per cent over the past month, far more than the Sensex, which is down 3.1 per cent. It has fallen 13.9 per cent from its 52-week peak (vis-à-vis 8.1 for the Sensex). In the market run-up over the past few years, small-cap stocks had outperformed mid- and large-cap stocks. But the tide has changed now.

“The law of averages is catching up with small-cap stocks, which is why they are falling at a faster pace than large-caps,” says Samir Rachh, fund manager, Nippon India Mutual Fund (MF).

Sharper rise, steeper fall

When market sentiment turns bearish