Is the worst over for small-caps? Here's what past data indicates

Small-caps have been among the worst hit in 2018 as domestic and global headwinds have led to risk-aversion. The small-cap index has fallen as much as 30 per cent in the current calendar year. In year-to-date, the index is down 27 per cent. Historical data shows that small-caps have witnessed sharp rallies after seeing such large corrections. After crashing 68 per cent in 2008, the index staged a strong come-back.

In 2009, the index was up 115 per cent, while the next year the index rose 16 per cent. In 2011, after the index was down 36 per cent, it was up 36 per cent the following year. In 2013, the index was down 9 per cent as the US Fed indicated unwinding of quantitative easing. However, the index continued where it had left off and was up 62 per cent in 2014. While launching a small-cap fund recently, Alok Singh, CIO of BOI AXA MF, said that after the fall small-caps have seen in this year, they should soon start seeing a recovery. “The bounce back could be in three months or even sooner,” Singh said.

The index is already up 5.6 per cent from its 52-week low of 13,396 points it touched in October. Some of this rebound could be attributed to valuation multiples coming off sharply since start of the year.