Smallcap Opportunities to Consider Today

It's been raining red in the stock market.

Geopolitical uncertainties, Trump's tariffs, FIIs selling, DeepSeek...the list of culprits are long.

But this correction was long in the making. The valuations of a majority of smallcaps and midcaps made little sense, and were high enough to make a true-blue value investor consider retirement.

So here we are.

The smallcap indices are officially in a bear phase now. To put things in context, a bear market is defined as correction of 20% or more. The BSE Smallcap index is down 22% from the peak in December, in a period of just 2 months.

A highly celebrated fund manager recently advised caution even for SIP in smallcaps and midcaps, unless you keep at it for two decades.

And as per some financial dailies, he has apparently said "We think it is a clear time to take out lock, stock, and barrel from small and mid-caps."

I'm not sure if he actually said that. But this is something that I disagree with.

As the correction in individual smallcaps is a lot sharper than the index itself, the valuations look better now than until a few weeks ago.

Now, the correction could go deeper. You see, the Smallcap to Sensex ratio is at 0.59, a premium to long term median of 0.45.

But the worst action to take now would be to press the panic button.

It will be critical to differentiate the ongoing market volatility from risk which is a phenomenon that leads to permanent loss of capital.

While more pain could follow, the key to lasting returns will be staying in the game. Asset allocation and margin of safety in valuations may not give you immunity against a correction, but they will certainly be effective in giving you the staying power.

Coming to silver linings, for the long-term investor, this is a better (if not the best) time to invest in smallcaps compared to two months ago.

You see, a good number of individual smallcaps have corrected a lot more than the index. This has given an opportunity to buy more of some of the existing open positions which look attractive from a long term perspective.

What's more, it has offered a much-awaited opportunity to buy some of the good performing businesses in a smallcap watchlist.

A lot of people tend to take past prices as a benchmark (or real value), and see the correction as a buying opportunity, irrespective of what's happening at the industry and company level.

However, stocks trading at 52 week low will be a poor criteria to find value in this market.

The winners in the next cycle could be different from the winners in the last rally.

So keep your eye on the future business trajectory rather than relying just on the extent of the correction.

So where should you start looking for opportunities?

A few days ago, I shared a watchlist with you, based on insider buying during market correction.

Promoters are the business owners and have a long-term business mindset. As such, if they see the correction as a buying opportunity, there is a good chance that the business has more value than what the current stock price is reflecting.

Below are some of the stocks that insiders have purchased in the month of February. Do note that this just a watchlist and no view is implied through this article.

Stocks With Insider Buying in February 2025

	No of stocks	Value (Rs m)	Avg Buy Price in Rs per share	Closing Price on 17th Feb (Rs per share)	Discount / Premium (%)
Jindal Steel & Power	6171357	4985	808	838	4%
Quess Corp	754437	461	610	598	-2%
Maharashtra Seamless	213499	132	618	604	-2%
DB Corp	383579	88	229	213	-7%
Texmaco Rail	500025	82	165	137	-17%
Paisalo Digital	1681903	69	41	40.4	-2%
Solara Active Pharma	112000	58	519	504	-3%
Mangalam Cement	70000	57	816	715	-12%
Texmaco Infra	489201	57	116	93	-20%
High Energy Batteries	104275	52	496	469	-5%
TarcLtd	400000	51	128	120	-6%
TGV Sraac	342589	34	99	101	2%
RK Forging	50000	33	666	657	-1%
Alembic Pharmaceuticals	34773	29	834	815	-2%
Transchem	584387	27	46	45	-2%
GPT Infra	213002	24	110	103	-7%
Sobha Ltd	20000	23	1,175	1,125	-4%

Source: Company filings, Equitymaster

Another way to start for bottom up investors would be to look at earnings.

As you know, the earnings season has been on. Most, if not all companies have come up with the results for the quarter and for the nine months ending December.

As such, it would be a good idea to build a watchlist of stocks where the business has done well, and yet the stock has been caught up in the broader market correction. I'll dig deeper into this once the earnings season is concluded.

To stay tuned, subscribe to Profit Hunter.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)