Unusual moves: Investors should tread carefully in smallcaps space

While there are surely pockets of value and potential multibaggers in the smallcap space, investors should be cautious due to the elevated valuations in this part of the market

The stock-market correction of the past two months has some unusual aspects. It has been driven by sustained selling by foreign portfolio investors (FPIs) while domestic institutions and retail investors have stayed bullish. Another unusual feature is that smallcaps and midcaps have displayed more defensive strength than largecaps. While the Nifty is down 6 per cent from its September highs, the smallcaps index is down only 2.5 per cent. The smallcaps have also easily outperformed the Nifty in the bull run that occurred till September, gaining 38 per cent between January and September, while the Nifty rose 26 per cent.