Want to invest in Smallcaps and midcaps? Kotak Equities' advice for you

Broader market upswing over the past six months has been primarily driven by "low quality" and "narrative" stocks, it said.

It would be best to shift focus from "low quality" to "high quality" stocks despite challenges faced by the latter, as per Kotak Institutional Equities as it made recommendations on midcap and smallcap companies. The broader market upswing over the past six months has been primarily driven by "low quality" and "narrative" stocks, it said highlighting public sector undertakings (PSUs).

Smallcaps-Midcaps performance: This comes as apart from PSUs, Midcap index saw a modest gain of only 11%, while Smallcap index rose by 13%.

This comes as apart from PSUs, Midcap index saw a modest gain of only 11%, while Smallcap index rose by 13%. During this period, the Midcap index has overall climbed by 18% and the Smallcap index has gained 19% while some midcap consumer stocks declined 2%. Quick Service Restaurant (QSR) stocks declined 21% over the same period.

In September, Kotak Institutional Equities suspended coverage on its midcap and smallcap portfolio following their strong performance and recently looked PSU stocks, questioning the rally in many state-run entities.

Kotak Institutional Equities also said that some higher quality midcap and smallcap stocks have not experienced any re-rating or faced de-rating in the past six months.

Earlier NSE MD and CEO Ashishkumar Chauhan said small investors who do not have the capacity to manage high risk levels should not enter riskier parts of markets.

Meanwhile, ICICI Securities said in a note, “The market breadth is declining, which is a sign of mean reversion in mid/small cap stocks from over bought trajectory. Mid and small cap indices have rallied 35 per cent since October 2023. Intermediate corrections to the tune of average 12 per cent in mid and small caps have been a bull market norm. At present 8 per cent correction is behind us.”