The whole of September was a free fall. There was no respite, and hardly any strength showed up anywhere in the market. Midcaps, which had looked almost infallible after the first-quarter results, lost the most. A fall of close to 7% in a single month, despite strong domestic institutional buying, was not in anybody’s script. Small-caps did not fare as badly, losing only about half as much.
Both small-cap and mid-cap funds continued to receive steady inflows and faced no real selling pressure, yet their performance diverged sharply. That is all the more striking because the midcap universe is already concentrated in about 150 stocks, and mutual funds have narrowed ownership further still. Steady SIP books and strong lump-sum inflows did not help much. Nervousness is in the air, even in the parts of the equity universe that have been performing.
The real story of this market may not be coming from there. The beaten-down largecap universe is offering blue-chip stocks at multi-year low valuations, a fast turn in sentiment toward private banks, and deep-value contrarian opportunities in industries that are sound economic proxies.
The real action may well shift to this space. Saying so now may still be a little early. Few are even willing to look at largecap businesses, and recency bias is stacked heavily against them. Most investors are either heading for the exit in panic or sitting on the sidelines.
This market will no longer reward latecomers to any party. You need to come in early, buy enough, and wait. Waiting for further clarity may not get portfolio returns back on track quickly.
This is no longer a test of stock-picking skill. It is a match that will test conviction. The need of the hour is to show conviction where nobody else will, in places where valuations are in your favour.
