Some investors are seeing this month’s collapse in smaller-cap Indian equities as a buying opportunity, even though the securities regulator has warned of a possible bubble. Smaller companies’ shares are projected to make a return after a selloff that has driven down the Nifty Smallcap 250 Index by about 10% since February 27.
These companies are considered major benefactors of the South Asian nation’s economic growth, which has exceeded 8%. On that day, investors were instructed by the Securities and Exchange Board of India to take precautions against the speculative bubble in small- and mid-cap stocks by mutual funds.
The collapse comes after a spectacular run that saw the smallcap index gain almost $230 billion in value since March of last year, propelled by strong profits and consistent inflows from India’s legions of ordinary investors. Even while prices are still high, purchasers who are historically astute claim that periods of turmoil similar to the present one are typical in bull markets and often encourage a move towards quality.
Conclusion
“It is definitely a chance to buy quality, well-run businesses at more appealing prices,” said Mike Sell, global emerging equities head at Alquity Investment Management Ltd., a UK-based company. “While recent corporate commentary paints a stronger picture than is perhaps widely appreciated, nothing fundamentally has changed.” A BSE Ltd.-managed smallcap index surged almost 1,200% throughout that period, with many brief corrections interspersed with the rise.
