The Indian stock market’s shares of smaller and medium-sized companies have witnessed significant volatility after the Securities and Exchange Board of India (SEBI) issued a warning about excessive speculative activity in February. Since reaching its peak in early February, the index for smaller companies has seen a slight drop of over 4%, whereas the index for medium-sized firms remains close to its record high, leading to debates about potential overvaluation in these sectors.
Views on the market conditions, particularly concerning smaller and mediumsized enterprises, vary among experts. Diwakar Rana of Prudent Equity points out that the surge in new company listings (IPOs) and limited trading activity, especially among smaller entities, has contributed to inflated stock prices. Pawan Bharaddia from Equitree Capital also notes overvaluation in some smaller and medium-sized companies. However, he contends that, for the market overall, prices remain typical in the long-term context, suggesting the issue might be contained.
Conversely, Divam Sharma of Green Portfolio adopts a more optimistic stance, arguing that the fundamental financial health and performance of these market segments are solid. He does not believe that valuation levels are excessively high, thereby questioning the widespread concerns over potential overvaluation.
In spite of these differing perspectives, there is a consensus among investors that the market will soon find equilibrium, though a minor correction of approximately 5-10% in certain sectors is anticipated. Experts, including Tanvi Kanchan from Anand Rathi Shares and Stock Brokers, foresee a swift recovery. They view this as an opportune moment for investors to realign their strategies.
The advisory for investors is to proceed with caution: liquidating shares that have significantly appreciated in value, diversifying their investment portfolios, and focusing on companies with robust fundamentals. With the forthcoming elections introducing more unpredictability, experts uniformly recommend recalibrating investment portfolios for long-term success. As the market evolves, astute investors will benefit from prudent planning and a keen awareness of risks.
