Big gets Bigger?

Small was sleek and smart all through 2017. Now it has turned sleazy and sick with no one wanting to touch even with a barge pole. But for large and big, life has turned a full circle. Not a week has gone by in the last few months without someone (from large-caps of course) hitting headlines for scaling new highs in the market-cap race. First, it was Reliance (RIL) to hit the Rs 8 lakh crore mark. But, TCS which was not too far behind, quickly caught up to make it a dead-heat fight. The race for number 1 is still on, as we write this..

It is well documented that the current market rally has been too narrow. Headline indices hitting life-time highs have hardly brought cheers to investors, as portfolios continue to bleed on broader market’s under-performance. One estimate suggests, that more than 60% of the 15% rise in NIFTY in this calendar year has been on account of just five stocks namely TCS, RIL, HDFC twins and Infy. Small cap index is down by over 10% in the same period. Story can’t be more skewed than this. Of course, this madness may continue, till the excesses of last year get flushed out in small and midcaps by continued selling by HNIs and PMS houses (not to exclude the PMS cloned portfolios) on every small rallies.

But the larger point is, what is happening in large caps is more cyclical than any fundamental or structural shift. Large cap binge will have its shelf-life too and soon should see an end. Seasoned investors know this cyclicality too well. It is counter-cyclicality that creates long-term value, not joining the current flavor of the season, as much of returns come from price one pays. It is not time to chase large cap, but time for selective stock picking in high quality small caps which have corrected because of binge in blue chips. It is time to create RICH portfolios from SMALL gems!!