InvestorQ : Mid caps and small caps have corrected sharply in the last few months! Can we expect a bounce in these stocks?
manisha Kolvenkar made post

Mid caps and small caps have corrected sharply in the last few months! Can we expect a bounce in these stocks?

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Mahima Roy answered.
1 year ago
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A recent study done by Kotak Mutual fund may be of interest to you. In fact, the study is favouring a rally in mid caps and small caps based on historical data. According to the report, in the last 2 occasions when the mid caps and small caps had fallen in a heap, they had rallied sharply in the immediate next year. The report looks at two different occasions in the past 10 years when the mid caps had corrected very sharply. This was visible first in 2008 and again in 2011. For example, in 2008, mid caps had corrected by nearly 70% but bounced more than 100% in the next one year after the markets had bottomed out in early 2009. Similarly, in 2011, the markets had corrected sharply on the mid caps front after the European crisis. Again, by end of 2012, the mid caps were up by nearly 80%. From that empirical perspective, there is a high probability that mid caps and small caps could outperform in 2019 after the sharp correction in the year 2018. That poises mid caps and small caps to outperform the large caps this year. If you look at mid caps from the beginning of 2018 till today, the big correction has been there only with the intensity ranging generally from 50% to 90% in some cases.

From that perspective mid caps could be a good story but for now you will have to wait and watch out how the global and domestic liquidity situation pans out. Only after that you should look at mid caps. Ideally mid caps do very well when rates are cut sharply. So, if the US Fed cuts rates by 50 bps and the RBI also cuts rates by 50 bps, then you have a strong reason to be buying mid caps with a 1 year perspective.
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