While the Indian stock market experienced a steep decline in small-cap and mid-cap stocks on Tuesday, September 12, Mihir Vora, the Director and CIO of Max Life Insurance on Wednesday said it should not be a cause for alarm. Instead, he views it as a natural correction in a market that had seen significant gains in these segments over the past year.

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In an exclusive interview with CNBC-TV18, Vora provided insights into the factors driving the surge in small-cap stocks and shared his perspective on Tuesday's decline.

Notably, on September 12, mid-cap and small-cap equities experienced a steep decline, with a staggering 90 percent of these stocks ending the day in negative territory. This downturn marked one of the most significant declines witnessed in 2023.

In response to this sharp correction, Vora said, "Yesterday's move is nothing to be worried about, I would say. It is just one of those things where there was a bit of froth in certain stocks and spaces. Not unjustified, probably, but maybe stocks running ahead of time, but just a natural correction."

If we look at the Indian stock market overall, the same has witnessed a remarkable surge in small-cap and mid-cap stocks, garnering significant attention from investors and analysts. Over the past year, the Nifty Midcap and Nifty Smallcap indices recorded substantial gains of approximately 24 percent each, in stark contrast to the Nifty50's more modest increase of 10.64 percent.

Vora attributed this upward trajectory to a combination of factors, with one of the key driving forces being the active participation of domestic investors, retail traders, and high-net-worth individuals (HNIs). Their growing interest in smaller companies has led to increased liquidity and demand, subsequently propelling the prices of these stocks.

Vora emphasised the role of domestic investors, who have increasingly explored opportunities in smaller companies. The ongoing economic recovery and the resilience displayed by these businesses during the pandemic have made small-cap stocks an attractive investment option for many.

Another critical aspect highlighted by Vora was the substantial inflow of funds into mid and small-cap mutual funds. He revealed that these funds have witnessed an impressive influx, accumulating Rs 4.2 lakh crore. This infusion of capital has further strengthened the small-cap segment and provided much-needed stability to these stocks.

Despite the surge in mid and small-cap stocks, large-cap funds continue to dominate the market, accounting for nearly 60 percent of the total assets under management in the mutual fund industry. This indicates that investors, while exploring opportunities in the small-cap segment, still favor the relative safety of large-cap stocks.

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(Edited by : Anshul)

First Published:Sept 13, 2023 3:00 PM IST