Investing in mid/small caps worth the risk: Report

With large cap stocks better placed than mid caps, the divergence between these two segments has become starker, yet going forward the risk reward is tilted in favour of mid/small cap stocks, says a report.

According to a Sanctum wealth management research report, mid and small caps consistently outperform Nifty 50 in 'up cycles' and adjusted for volatility, mid cap stocks remain the "sweet spot" in the equity market.

"Mid caps consistently outperform large caps on up cycles. Interestingly, mid caps outperformed large caps during the selloff in 2015 as well, but have fallen more than large caps recently," the report said.

The report further noted that "the data unequivocally demonstrates that the risk reward for high return seeking investors clearly favours mid and small caps".

Despite the "crash" in mid-caps, the mid cap index is still outperforming the Nifty 50 since the December 2016 trough, it noted.

As per the report, stock investors are facing two major concerns whether it is the right time to invest as markets are running up to new all time highs and secondly, whether mid/small caps are still the best bets.

The report said investors can still enter the market even if the market is trading at peak levels and citing examples it said even if investors bought at the 2010 peak, they doubled their money with 97 per cent returns for mid caps and 80 per cent for the Nifty.

While an investment at the peak in 2015, is up 36 per cent in mid caps and 27 per cent in Nifty 50.

The domestic brokerage firm retained its projections for the equity market but said that investors should stay invested but they should be vigilant.

"The appropriate approach is to own a diversified combination of mid, large and small. The percentages can vary according to individual appetite," the report said.