Rally in smallcap and midcap companies start after a Long Bullrun in Largecaps.
There are 6 phases of Midcap & Small Cycle :
1️⃣ BOOM PHASE – Year 2015 To 2017 can be termed as Boom Phase
2️⃣ SLIDE PHASE – Year 2018 can be a starting year of slide phase
3️⃣ TROUGH PHASE – Current phase can be termed as Extended version of Slide phase.Midcaps/ Smallcap are Going thru TROUGH phase & soon Nifty & Largecap can also Follow it.
4️⃣ OPPORTUNITY/BOTTOM – Markets & Stocks can make Bottom Any Time In After Trough phase is over.After Making a bottom there is Huge opportunity.
5️⃣ RISING MARKET – A year after Bottom is made there Can be The Year Where we can see Some Positive Developments slowly & Steadily & Can see Sustained Upmove.
6️⃣ HOT MARKET – A period After sustained Upmove there can be HOT MARKET & THIS is the phase where Midcap & Smallcap stock have dream run up with extended Boom phase 2021 To 2024 We can see Any Year a Hot Year for Equities & After That next two years can be BOOM PHASE LIKE WE SAW IN 2015-2017.
“In Above example we have just correlated Years with The Market Cycle.It’s expectation which can workout or can Happen as per Market Cycle”
Bullrun in Smallcap and Midcaps are short.These bull Run in smallcap and midcap companies comes only After a Long Run in Largecap particularly.
when largecap move in a Given upper channel or move above 21 Exponential moving average for long time without breaking the trendline, then the rally in smallcap and largecap starts.
When sustained rally in largecap is in place many Investors feel that they have missed the huge rally so they start searching for Smallcap companies and Midcap companies.
They search for These small companies because largecap do not give meaningful and deep correction for them to enter so there is a feeling of Leftout.
Every investor small 0r medium size jumps for these stocks and demand increases.
There is a huge broad based buying. People blindly put huge money in the market & Volumes increases And price also increases.
More and more peopleentered at High price.
When the bubble burst these stocks do Not give chances for exit and small investor gets trapped.
Now every small and mid size investors want to exit at any price and they start selling.
Since selling pressure is huge stock cannot bounce back.
On every bounce there is a huge sell.
People are still in delmia or still have side effects of Huge bull Run of Smallcap companies.
Due to this side effect they do not make fresh buying in smallcap.
It generally takes 3 to 4 years to overcome from trauma of loosing money in smallcap.
Those experienced people won’t generally invest in Midcap & smallcap very quickly.
Now after 3-4 years new set of investors come in market.
They see the huge bull Run of largecap and then they start to invest in smallcap and midcap companies. And the cycle repeats.
Once the cycle starts again old investors invest money in small companies in anticipation of making big money and forgetting their past experience.
These kind of situation leads to even stronger bull Run in small and midcap stocks and then when bubble burts cycle repeats.
It generally takes minimum 3 to 4 years for Cycle to revive and could even take longer sometimes.
There could be exception that certain fundamentally strong stocks giving consistent performance can become multibagger but there are only 2-3% such stocks.
There are Very High Chances that Midcap & Smallcap can bottom out in next 3 to 6 months as Valuation can reach resonable. Midcap & Smallcap can see last leg of correction in next few months.The last leg is very Painful & most Brutal.
Quality Midcap & smallcap Would Shine once Upmove starts & which can happen in next 18 to 48 months.
Sector on which we are Bullish Chemical,Life Insurance,Auto Ancillary,Midcap IT,EV’s,Consumer durables & Select NBFC & Few Theme based companies.
Soon there can be a shift from largecap companies to mid-size companies as Valuation becomes more attractive. However, it would be too early to say that investors are shifting,need to watch for next few months.
Disc – All views expressed are personal and only for Educational and study purpose. We are not sebi registered.Consult your financial advisor before investing or taking any position based on above article.