Which is best Small Cap or Mid Cap: The Growing Divergence Between Midcap & Small Cap Stocks

By Mariyam Khan 4 Min Read
which is best small cap or mid cap

Which is best Small Cap or Mid Cap: The Indian stock market has diverged sharply between midcap and small-cap stocks, with mid-caps gaining the upper hand by a big margin. Raamdeo Agrawal, chairman of Motilal Oswal Financial Services, says concerns have been raised regarding this divergence, with the possibilities made between either large caps catching up or midcaps correcting. Investors are watching street by street with wonder if these trends will sustain or revert. Allocation now becomes highly important for portfolio success.

Which is best Small Cap or Mid Cap: Midcap vs Small Cap Stocks

The chairman and co-founder of Motilal Oswal Financial Services, Raamdeo Agrawal, has recently remarked on the glaring difference in performance between large-cap stocks and mid- and small-cap stocks. Over the last five years, while the Nifty index has appreciated about 95-96%, the mid-cap stocks have skyrocketed by an impressive 177-180%. Such a yawning gap indicates some imbalance that may need to be set right.

Agrawal puts forth that, to normalize this disparity, large-cap stocks either need to catch up with mid-caps, or mid-caps must undergo a correction, whether that happens through time consolidation or through actual prices. He also says the divergence between mid and small caps appears unusually wide.

Raamdeo Agrawal’s Take on Market Imbalance

Ramdeo said “market starts moving from 700 to 4200 unprecendented 19 months so the story always different it was not backed up by earning just some kind of liquidity flow 2000white took it boom it a sectoral move big time again it crashed by 50-60% 2008 again GFC crisis and everytime earnings are broken but this time market has moved from 500 rupees EPS to 2000 EPS rupees for nifty and market extended from 8000 to 25000 so it went 3x earnings went double so market got big so we are correcting that rating because earning profile is slowed down but not broken.

Current year the earnings are going to grow at about 5-6% after always been something up to create difficulty in the market. In march quarter with closer to 7 and half% to make I think it’s pretty good.

If market correct further from here it is overshooting downside right now after four years we can expect more as we can see in last 6 months we made 70-80% and losing 20-30% only. IPO markets are frozen right now and credit flow in improving and all the things are following correct.

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Will Large Caps Catch Up or Midcaps Correct?

He also adds that the focus will turn toward large-cap stocks considered cheaper than mid- and small-cap stocks, where valuations are extremely high with stable earnings growth. He states that in the near term large-caps can outperform.

Investors are advised to be very cautious while investing in mid-cap and small-cap stocks, where chances of corrections still loom due to extended valuations. In the current market environment, the focus should squarely be on quality large-cap companies with stable growth potential.  

Conclusion

A flicker of difference in how mid-cap and small-cap stocks perform shows an important time in the market. While mid-cap stocks are gaining ground, there have been fears that they may be awfully priced and could witness a collapse. Agrawal recommends that cautious investors consider moving toward large-cap stocks, which appear more stable right now. The market will decide whether mid-caps rise or fall. It would thus be prudent for remaining investors to keep their heads up and keep their investment strategy balanced.

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Mariyam Khan is a passionate financial writer dedicated to making complex financial concepts accessible to everyone. With a keen interest in personal finance, investing, and economic trends, I aim provides insightful and easy-to-understand articles that empower readers to make informed financial decisions. Eager to grow in the field, stays up-to-date with the latest financial news and strategies, bringing fresh perspectives to the world of finance.
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