most of us have been wondering what has been going on in the midcap and small cap space over the last few weeks and whether the recent correction presents a buyingopportunity. let me present my analysis on that:
nifty has been rallying along a nice trendline since may-12 and has tested it several times and rallied everytime after touching the trendline. today it has closed slightly below the trendline. this is the first close below the trendline since the uptrend from may-12 bottom started. this could either mean that the uptrend has finished and nifty should head to much lower levels or this is an excellent buying oppurtunity which could lead to much higher nifty levels over the next few months. i believe the probability of the latter is higher because of three reasons - 1. nifty is most oversold since may-12 bottom and such rsi levels have led to significant rallies in the past. 2. global markets are holding up well with spx leading the other indices higher. 3. third reason is the important levels the mid and small cap indices are reaching which should lead to atleast a bounce. i would cover this a bit later. please refer to the nifty chart below:
bsesmallcap and bsemidcap indices have been moving within a contracting triangle since the top of 2007 and are currently near the bottom of the range. this could lead to the next significant smallcap and midcap rally or this time we could see this triangle breaking. even if the triangle has to break, we should see a bounce first before these indices head lower. the recent fall as the indices approach the bottom end of the range hasoccurredon lower volumes which means probability of breaking the triangle is low.both the indices are reaching oversold levels on the rsi and could see bottoming out over the next few sessions. please refer to the links below:
i believe we are at a critical juncture for the markets. investments into strong stocks done with reasonable stoplosses could reward handsomely over the next few months.
disc: this is just my technical opinion. please do duediligencebefore making any investments.
Interesting theory hemant. Nice to see a technical analyst taking the broader picture into consideration.
Regarding small and midcap triangles these are huge triangles and breakout if possible on upside might provide big time returns. Lets hope this happens.
The scenario of fear in small and midcaps does point towards a rally somewhere down the line.
Maybe we should start a thread on most promising small and midcaps along with the blue chips thread donald is pursuing.
smallcap index broke the triangle formation conclusively and midcaps is testing the lower end. this does not augur very well for smallcaps right nows with a re-test of 2011 lows the next target. if that doesn’t hold up well we are likely to stare at the 2008 lows again. i have to mention that the good quality small caps have held up very well against this correction and they may fall as well in case the correction continues. i would hold off from any major purchases in that space until the index settles down a bit. i have been doing selectively buying only in small quantities. this year and next could throw some very interesting oppurtunities for the next multi-year smallcap bull market.
I think what vivek patil has been hinting since past 3-4 months about a top being formed in jan-march 13 period is playing out now.
First the weaker counters were smashed out of shape. Next the relatively stable small and midcaps are under the onslaught.
In final phase, the stocks holding out and those with high PE indicating strong investor fancy should suffer PE contraction. A few stocks like titan already are showing signs of getting into PE contraction mode. More stocks may follow suit.
I think all along we have been focussing on good quality small and midcap stocks which till now have held out well but might come under the hammer.
Key remains to keep a list of stocks one wants to buy depending upon one’s conviction and buy at declines gradually.
A stock holding out in this onslaught may not necessarily be a great investment idea because “uski bhi baari ayegi”
My list includes stocks like kaveri seeds, unichem, ajanta, canfin homes, gic hsg, hdfc bank, indusind bk, greenply, kajaria ceramics, page inds, etc
I have been watching kajaria and kaveri and after a long time both seem to be cracking now.
Thanks Hitesh for clarification. I have the same feeling that we are in for a little longer down turn as there is no positive news in pipeline for some time to come. Time has come to wait and watch from a distance and add if one has cash available.
Kindly
note that this is in no way a recommendation to invest in the scheme mentioned
hereunder. The purpose is just to share thoughts of an AMC that enjoy high
repute in Mid Cap investing about the current carnage in this space.
IDFC
Mutual Fund is slated to launch a 3 year close ended equity scheme aimed at
investing in small cap cos. Mr. Kenneth Andrade, the fund
manager, is an accomplished stock-picker in the small/mid-cap space and was first to invest in stocks such as Page Ind, Kavei Seeds,
Shriram Transport etc.
This is what theyâve to say about their new offering
(exactly matching the thoughts of our very own Hemant and Hitesh Bhai);
-----
HI,
We are launching IDFC Equity Opportunity-
Series 1 (A 3 year close ended equity scheme), the NFO dates are as follows:
Opening Date
April 9, 2013
Closing Date
April 10, 2013
Allotment Date
April 15, 2013
Maturity Date
April 14, 2016
High
conviction ideas emerge when all headlines are negative. They donât come every
day.
Consider
few data points
1.
Equity
markets in last decade had two cycles. Markets moved up sharply from
2003 to 2008 and gave up large part of gains in 2008-13.
2.
If
we go deeper, between 2003 â 08, Nifty was up 6 times and BSE
Small Cap was up 13 times. This 8 times out performance in BSE Small
Cap was triggered due to RoE expansion from 4.5% to 14.1%
3.
Between
ââ2008 â 13ââ, Nifty has been at same levels & Small Cap Index has
lost absolute 45%. This massive under performance was triggered by RoE
of BSE Small Cap cos dropping from 14.1% to 4.9% (back to where they
bottomed out in 2003)
4.
This
economic cycle hascreated lot of consolidation as small businesses have
shut capacities in this slowdown and valuations are reflecting the same. As
interest rates move down and economic cycle improves over next 3 years, we
expect Small Cap companies to lead the markets and other indices
as the new economic cycle starts playing out
5.
To
participate in this trend, we are offering this opportunity through a 3 year
close ended fund called âIDFC Equity Opportunities Fund â Series 1â
6.
We shall limit the fund size to 125 cr as
this is a small space currently and our focus would be to ensure investors make
early returns in the next cycle.
In summary, the Small Cap
universe out performed Large Cap universe by 8 times but has now reverted back
to mean and lost out the entire out performance. All Indices have converged
back to where it all started in 2003.
The attached document has details of
the investment idea and our investment philosophy and portfolio strategy.
Like always, we hope to create
happy investors by making them invest in early stage.
Ilyas, any idea of the 2 “potential wealth creators” & 3 “Wealth Creators of the last cycle” mentioned in the IDFC Equity opportuniites offer document???
Ilyas, any idea of the 2 “potential wealth creators” & 3 “Wealth Creators of the last cycle” mentioned in the IDFC Equity opportuniites offer document???
Yes wimplast is confirmed in plastics space. Munjal auto seems to fit the auto ancillary. I compared the profit figures and margins etc and it seems to be munjal auto.
Taking a guess on so called âpotential multi baggersâ on basis of very limited information could prove very dangerous to an investorsâ financial health.
My entire aim posting about this IDFC NFO is just to highlight that we might get some very interesting opportunities in following weeks/months for bottom fishing in the mid/small cap space where quality names are already floating here on Valuepickr. We just need to be prepare (both mentally and financially) to benefit out of this panic. The need here is to actively discuss those Valuepickr picks that are fundamentally most appropriate for multi bagger returns over next couple of years.
previous script seems to play out nicely now with smallcap index reaching closer to the first target of 5500. I think we are now in the capitulation stage were the previously strong smallcap stocks which were holding out well like astral, ajanta, gruh etc are finally taking it on the chin. i expect a good bounce from 5500-5700 region. initial target should be the traingle trendline at 6600-6700. once we get there, we would need to re-assess the situation. 2009-10 rally in smallcap rally seems like primary 1 wave with 2010-11 correction as wave A of primary 2, 2012 rally as wave B and current crash as wave C. this could be full wave C or we could be seeing only the first leg of it. once this correction is over(in the 5000-5500 region), the next primary wave 3 should be a rip-roaring bull market in smallcaps where smallcap index should outperform nifty by a wide margin. risk to this analysis is if smallcap index breaks 5000 and 4870(76.4% retracement)and heads even lower, then the whole 2009-10 uptrend could have been a bear market rally and then this index should crash to 2008 lows of around 2800.
If what brother Kenneth is saying is true ie playing the interest rate cycle then not only small caps should do well but also the infrastructure and interest rate sensitive sectors should do well
I referred it back on capital line