Tackling Sebi's rules: Don't ignore high risk in mid and small-caps

These stocks may see better valuation, but stick to firms with good track record

There is little doubt that the new rules for multi-cap schemes, announced by the Securities and Exchange Board of India (Sebi) last Friday, are positive for mid- and smallcap stocks. Many market experts believe fund managers will increase their allocation for mid- and small-cap stocks based on the new rules. But, given the characteristics of this universe, investors should also consider the higher risks involved.

Pradeep Kumar Kesavan, senior vice president-strategy at Elara Securities, says: “Mid- and small-cap stocks will see support only in the near term. This can change the risk-reward ratio in the multi-cap space, which one needs