As the indices slowly trend lower, something else is happening in the broader markets. We are seeing a barrage of sellers in popular mid caps and small caps. The parcels are large and virtually, there are no buyers. On the other hand, sector after sector seems to be capitulating. Last week, only one sectoral index i.e. power, showed some gains. This is an indication of rising political concerns, lack of fresh inflows, and redemptions faced by domestic mutual funds.

There are peculiar exceptions too – the massive over-subscription in the Bharat-22 ETF and the oversubscribed SUUTI sale of axis bank shares being prominent ones. What seems to be going on is a churn in portfolios, newer choices, and style reorientation. Actually, this is not such a bad thing. Smart money is moving out of midcaps and seeking refuge in safety.

The sense we get is there is more pain in midcaps, small caps, and consumption. The stars of 2017 are now seeing slowing growth or tepid earnings performance. The market is rethinking its generosity in valuations. This will naturally lead to more pain. But, from the pain of the coming three months, a big opportunity will take birth. Sensible and smart investing is about preparing and taking advantage of this emerging opportunity.

Smart gains await investors who seek the right ideas and show conviction during times of pain.

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