Smallcaps: How have they performed? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Smallcaps: How have they performed?

Aug 28, 2008

What is the Smallcap Index?
The indices in general are constructed on the 80-15-5 method, wherein companies aggregating to approximately 98.5% of average market capitalization are categorized under large, mid and small cap segment respectively from the BSE universe. The BSE Smallcap Index tracks the performance of scrips, which contribute to almost 5% of aggregate market capitalization of all the companies, listed on the BSE. The constituents of the index are reviewed every quarter. As on 14th July 2008, 488 companies constituted the BSE Smallcap Index.

Performance over the years
If one had invested Rs 100 each in the BSE-Sensex, BSE 500 Index and the BSE Smallcap Index in April 2005, it would be currently worth Rs 226, Rs 206 and Rs 178 respectively. We can notice from the above chart that the BSE Small cap Index has garnered higher returns at the peak of the bull runs as compared to the other two indices. During the two bull run peaks (circled), we can notice that the returns from the Smallcap Index were higher as compared to the returns from the other two indices. However, post the market corrections in mid 2006 and January 2008, these 'high' returns have literally tanked.

The question that would come to everyone's mind is what could be the reasons behind this behaviour of the small cap index. Since a definite answer cannot be given on account of the complexities involved, we can only hazard a calculated guess. First, investors prefer to invest in stocks that are well researched and whose information is widely available. The list of these stocks would largely consist of large cap stocks. During a bull run, once these large cap stocks tend to get expensive or over valued, investors begin to search and locate for cheaper or 'value stocks'. Thus targeting the companies from the midcap and smallcap space.

Share prices are nothing but indicators of an investor's expectations of a company's future earnings. But this rule may not always apply to the companies from the BSE Small cap index. Agreed, that the growth potential of these companies is much higher as compared to the larger players, however, more often than usual, stocks in the BSE Smallcap Index move on the basis of the market sentiments rather than on their fundamentals. Investing in stocks from the smallcap space may not be everyone's cup of tea. Investors must be well aware of the business and industry of the companies they plan to invest in, as the chances of failures are high.

Equitymaster requests your view! Post a comment on "Smallcaps: How have they performed?". Click here!


More Views on News

The Gold and Silver Bull Market is Not Over (Fast Profits Daily)

Sep 29, 2020

The last few days have been nerve-racking for bullion traders. Stay calm. The bull market still has a long way to go.

Earned Short Term Capital Gains on Shares? Here's What You Need to Know While Filing ITR (Outside View)

Sep 29, 2020

PersonalFN explains CBDT's clarification regarding scrip wise disclosure in ITR in case of short term capital gain.

This Smallcap is a Must Have Stock in Your Portfolio (Profit Hunter)

Sep 29, 2020

Investing in this smallcap could open doors of huge, long-lasting wealth.

Why the Market May Rally for a Few Days (Fast Profits Daily)

Sep 28, 2020

Why I think the market can rise for the next few days.

My Top Pick for 2021 is Not a Stock. It is Something Much More Powerful (Profit Hunter)

Sep 28, 2020

My top pick for 2021 is something that has helped me and my subscribers beat the stock market by a factor of 2:1.

More Views on News

Most Popular

Discovering Best Smallcaps

Here are some ways to identify small cap stocks with strong moats, good fundamentals and solid managements that are available...

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 29, 2020 03:37 PM