The market has seen sharp correction due to excessive instability, FII selling and lack of liquidity. The small and midcap segment have faced a much fall against large-cap. The small and midcap segment saw a decline of up to 15 percent since the end of September 2024. Analysts of Nuwama Institutional Equities believe that this decline may not be a temporary shock but be the beginning of beer market, as domestic growth is slowing down and is going into a durable liquidity deficit. Apart from this, despite 15 percent correction, the valuations of small and midcaps are still high.
According to Nuwama Institutional Equities, Blip is younger, which lasts for two-three quarters. On the other hand, the beer market is a long-lasting correction phase, which shows 30-40 percent correction in two-three years. All sectors decline during the bluep. But during the beer market, real estate and industrial stocks experience large underperforms and usually suffer more than 50 percent of corrections.
How domestic growth is affected by kareks in SMID
Brokerage said that SMID is more connected to the domestic economy than large-caps. Therefore, domestic growth slows down only when Smids experience a recession era and correction comes in them. The best way to assess this is to see domestic credit bicycle and exports trend. If the credit bicycle is getting weaker then it is a sign of domestic weakness, in which SMIDS will always underperform.
