We were recently dwelling on this very interesting dichotomy that we have witnessed in the Indian stock market in the last 15 months or so.
The conventional wisdom prevailing last year, in the first quarter, was that the GST was going to drive out the unorganized sectors and all the business would flow into the arms of the organized sectors. And then the pandemic came. And this oversimplified opinion, turn into a snowball, with everybody saying that the pandemic would accelerate the demise of the small guy, small companies and would accelerate the Indian share market gains of the large guys.
And therefore, the only game in town was to stick to the comfort of the large caps and avoid the smaller companies or the small caps. So keep buying HDFC Bank, HUL, Asian Paints, and you will keep singing all the way to the bank.
Unfortunately, markets have a very irritating habit (even unfair!) of destroying semi-baked, and yet highly rigid opinions.
So surprise, surprise: the best performing index in the world in calendar 2021 is the....BSE Small Cap Index, up nearly 45%!
And the NIFTY50, in which the alleged market share gainers are tightly clustered in, has delivered a princely 12% year to date, and ranks at a lowly No. 19, just ahead of Italy.
Therefore, when we talk about a bull market in India, do remember that it is tightly focused on the mid and small cap end of the market while the large caps have been largely somnolent.
The reason for this is very straightforward: large caps need a broad economic momentum to deliver growth on their already large bases.
And so far the data does not tell us that the larger, wider economy has recovered from the effect of the pandemic and even the recent lockdowns.
Small cap companies operate in niche areas of the market and they can thrive in periods of relatively low growth because even a small order or a small contract or a small new business line can markedly alter their growth outlook.
This is exactly what has happened in India in the last several months.
The key question is what now?
We go back to First Global's invention: A proprietary model to look at and predict Equity returns: "The Lake of Returns Theory" (LORT).
Each Share market, each asset class has a finite amount of return potential based on its long-term return characteristics. It is like the capacity of a lake or a reservoir. A lake can hold only a finite amount of water.
When the levels of returns in any asset reach extremely low levels relative to its long-term returns, it becomes time for it to start filling up. And then the return (water) level keeps rising till it reaches overflow levels which basically means that the return levels of this particular asset class has overshot its capacity or long-term trend and then the water floods over and causes massive devastation through a Bear Market.
This proprietary theory of ours has led us to predict practically every single Bull Market or Bear Market in the last 25 years.
The returns from Indian small caps had reached the bottom of the lake because of the bear Market that came in 2018-19 and part of 2020.
The water levels started to fill up only from this year in some momentum.
How much further can the water rise? Well they have reached a certain level where in a small intermediate overflow is possible which basically in Indian share Market terms means a breather.
Some data is important: typically, small caps globally, return around 30-50% more than large caps.
Indian large caps have returned around 15% CAGR over several decades.
Indian small caps, since start of their Index, have returned around 10% till date.
From Jan 2008 till now, they have returned just 5% CAGR! Well below their own "capacity" of 10% annual returns.
The data is clear: Indian small caps, while set for a small, short term "overflow" given recent strong gains, still have plenty of headroom capacity left in their "Lake" before a grand, devastating overflow happens.
Investors should take some gains off the table, remain diversified over at least 25 stocks, not be concentrated in any 1-2 sectors, and not panic in a pullback.
That would just be a temporary emptying of storm water from the "Lake of Returns". Nothing else.
From the desk of Devina Mehra.
If you want any help at all in your wealth creation journey, in managing your Investments, just drop us a line via this link and we will be right by your side, super quick!
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Bipinchandra Dugam @bipinchandra90
@devinamehra @firtglobalsec
invested in both GFF-GTS and Super I50. Thank you very much for such wonderful investing experience with completely new approach. In my 15years of investing first product I felt which close to what customer want.
Shishir Kapadia @shishirkapadia1
@firstglobalsec @devinamehra
by far you are the best, I have not come across transparency, acumen, global expertise, exposure, protection of capital, delivering return from any fund/ fund managers. Invested very small size in 3 products will keep on increasing it over the period
Piyush Bhargava @PiyushB88762654
@devinamehra @firstglobalsec
Thanks you team FG specially Devina, my investment doubled in less than 3 years in SDPB As a investors & PMS distributor of your product looking to have a long-term relationship with the company.
@KarmathNaveen the person with whom I always interact
Sumeet Goel @GoelSumeet
Very happy & relaxed to be invested with first global pms
Shishir Kapadia@shishirkapadia1
Congratulations on super performance, above all transparency and systematic process are unmatchable.
One must opt this, if person consider him/her self as an investor. Very happy to be part of this since invested. FG has managed worst year (ie 2022) so efficiently and skillfully.
SY @SachinY95185924
With so much of volatility in the market, risk management is very important part & considering that FG is doing awesome work!!! Kudos to you Chief
Amit Shukla @amitTalksHere
Truly outstanding. As a retail subscriber to #fghum #smallcase, I can vouch for the Nifty beating returns (8% vs 3%) in last 1 year. Keep up the awesome work @firstglobalsec
We can load above testimonials on site as a scroller, and just below that we can add a section for compliments . Below tweets are comments and praises are related to our content, performance and some our direct compliments to you.
ADIT PATEL @ADITPAT11226924
Good team...
Special mention @KarmathNaveen .. he is soo helpful anytime of the day or night..
Hindustani @highmettle
Bought Peace with FG-Hum.Moving all funds from DIY investing to well managed and diversified PF at low cost.
It has doubled almost, excellent pick.Every small investor must invest in her FG-HUM Smallcase.
Suresh Nair @Suresh_Nair_23
I have 8 small cases and your has been the most rewarding ones .. thank you Devina.
Sayed Masood @SayedM375
There is absolutely no doubt that she is one of the best investors of India in modern times but more importantly, she shares the most sincere and sane advice with retail investors.
SY @SachinY95185924
Wow Superb Returns🔥 Congratulations Chief for being Number 1 among all PMS!!!
You are one of the sharpest mind in Global Stock Market
AnupamM @moitraanupam
Congratulations Devina, results talk in itself!
Abhishek @simplyabhi21
Congratulations ma’am @devinamehra ! The consistency you have in maintaining the top rank position is outstanding! 👏
Mihir Shah @Mihir41Shah
We are learning More about markets (& Life ) thanks to U than we learnt in our Professional courses.A BIg Thank You, Wish all get Teachers Like You!!
Sumit Sharma @MediaSumit
"The ability to be comfortable with being outside consensus is a superpower in investing...and in life." Devina ji hits the nail on its head!
Majid Ahamed @MajidAhamed1
Congratulations @devinamehra mam! All the best for long term returns as well.
Vinay Kumar @VinayKu05949123
This is the wonderful session I have ever attended till date. One of the most fruitful hour of my life. Devina madam, ur clarity on financial mkts is simply superb.The way u portray the facts supported by "data" about stock mkts is really astonishing.I will listen again.Thanks.
VIJAY @drippingashes
I loved to read your journey, insight and philosophy. It's a pleasure to read and know of your takes on market and life.
MNC🏹 @Focus_SME
Check & follow @devinamehra's timeline for lots of post debunking such rosy stories. Also, she gives amazing 🤩 sector directions/hints.
KLN Murthy @KLNMurthy2016
Good actionable insights, great article!
Suresh Nair @gkumarsuresh
Devina Madam is simply terrific... good knowledge, straight and simple thinking.
Very difficult to emulate such traits. I listen her past interviews from youtube.
Respect...!!!!
DD @AliensDelight
One of the brightest minds in the world of finance :)
Radhakrishnan Chonat @RCxNair
📣 Calling all investors! Just had an incredible interview with @devinamehra, Chairperson and MD of First Global. We discussed the importance of global diversification, effective asset allocation, and the risks of sitting on the sidelines. Trust me, you don't want to miss this!
siddarthmohta @siddarthmohta
Excellent performance. Flexibility is the key as you have mentioned it earlier also. Cannot have finite rules for infinite mkt opportunities.
Boom (বুম)@Booombaastic
To be honest, the insights which Devina madam brings in is very enriching..have learnt a lot from them...
Himanssh Kukreja @Himansh02428907
One of the most accurate analysts :)
I always look forward to you interviews mam
Abhijeet Deshpande @AbhijeetD2018
Madam, It is always a treat to read your insight, not only on business but on other topics also!!
Dada.AI @dada_on_twit
Thanks for this wisdom ma'am. Always love hearing your thoughts on everything equity. :-)
adil @zinndadil
Excellent points!
Can clearly feel this thread is a product of marination of many books and years of experience. 👍
Kamal thakur @Kamalgt10
Superb !!
Your knowledge, analysis & articulation is simply great 👍
Tanay @Tanay36232730
Follower on Twitter and Subsciber on YouTube of First Global, really helping me in my investment desicion. Thanks
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