As the benchmark index Nifty 50 has risen considerably in the recent past, some investors have grown circumspect of investing further in the wake of higher prices, while the others are falling prey to what is known as ‘irrational exuberance’.
Nifty50 spiked by around 11 percent in the past six months alone, while S&P BSE Sensex jumped by a little less than 10 percent during the same period.
Consequently, a section of investment advisors recommends investors to get cautious and refrain from going overboard. They are of the opinion that investors should invest in a staggered manner for the next few months via systematic investment plans (SIPs). Another rational investing advice is to opt for portfolio restructuring that entails redemption of small & mid-caps to invest the proceeds in large cap funds.
Returns given by mutual funds (category-wise)
| Category | 1 year returns (%) | 3 year returns (%) | 5 year returns (%) |
| Small cap | 28.37 | 36.19 | 22.30 |
| Mid Cap | 25.71 | 29.50 | 18.53 |
| Large Cap | 15.12 | 20.11 | 12.25 |
(Source: MorningStar; annualised returns as on Oct 2, 2023)
“The small and mid-caps are already overpriced and one can expect a significant correction in the near-term future. It is recommended to do profit-booking in these categories and invest the proceeds into large caps,” says Sridharan S., a Sebi-registered investment advisor and founder of Wallet Wealth.
Expressing a similar set of arguments, Chokkalingam G, founder, Equinomics Research & Advisory, says, “There is a lot of volatility around the corner on account of state elections later this year, and general elections early next year. Therefore, it is the right time for investors to book profits in small and mid-cap categories. It is also recommended to increase the asset allocation in large caps.”
On the other hand, Deepesh Raghaw, a registered investment advisor (RIA), says that small and mid-caps, by their very nature, are volatile and should, therefore, draw the investors who have an appetite for them.
“Small and mid-caps are highly volatile and you should invest only if you have an appetite for them. And as far as the future projection is concerned, no one knows what would happen. However, investors should choose the allocation that they can live with. If a position in a category bothers you as an investor, then it means it is time for you to trim your position, ” he says.
