Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Small was (more) beautiful in 2009 - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 21, 2009

    Small was (more) beautiful in 2009

    The year gone by was like a dream come true for stock market investors. This was not just because stock prices rose sharply during the year. The happiness was enhanced as these gains came after a scary 2008 that shook the markets' foundations. None were spared during that tough period for the world economy and markets. Investors and speculators were treated alike. Small investors, who had put in their life savings in stocks, were amongst the worst hit.

    We understand that all these words might bring back to you the bad memories. But hey, that was 2008!

    We are now closing in with 2009 - a year that has seen the return of risk-taking and triple digit gains across stockmarkets around the world.

    India hasn't been left behind. The BSE-Sensex has in fact been amongst the best performers across key world markets during the current year. Overall, the gains of 2009 have made investors happy and expectant of another great year 2010. And those who invested in small-cap stocks at the start of this year might be happier still.

    After all, small-caps of all kinds have risen 3-5 times during this 12-month period. The BSE Small cap Index has outperformed all other key indices in rising around 115% during the year till date. These gains sparkle even when one considers the strong 100% and 75% returns of the BSE Midcap and BSE-Sensex during the same period.

    One big reason we think led to this outperformance by small-caps was that these started the year on a very low base of valuations. The BSE-Smallcap index was trading at a P/E (price to earnings) of just around 6.2 times in January 2009. Against this, the multiple stands at 17.6 times currently.

    Data Source: CMIE, Prowess

    Given these low valuations of small-cap stocks in January, and that it requires little money to move small-caps (owing to their low liquidity), a gush of cheap money that came into Indian markets during the year made its mark felt more on this category of stocks.

    Looking at 2010, we do not expect small-caps to repeat their performance of 2009. This is because these stocks (on an average) are now trading at valuations that are very close to those of mid cap and large cap stocks. For instance, the gap between BSE-Smallcap's P/E and Sensex's P/E currently stands at just around 18% as compared to 49% in January.

    But this does not take away from the fact that there are numerous small companies out there, which are still available at attractive valuations as compared to their good long term prospects. One however has to be very cautious in search for such valuable opportunities. After all, it's not every day that we hear about a new small company that's doing great things.st



    Equitymaster requests your view! Post a comment on "Small was (more) beautiful in 2009". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)