Finally, small- and mid-cap indices cracked on Thursday with Nifty Midcap 100 and Nifty Smallcap 100 tanking 2-2.5 per cent even as benchmark Nifty 50 hit a new high of 10,887.5.

Recent events, such as improving prospects of the information technology sector, news of likely 100 per cent FDI in private banks, encouraging financial performance in December 2017 quarter by large-cap companies and profit-booking led to some churning, according to experts.

Short- to medium-term investors should stay away from mid- and small-cap space, they added. “There is weakness in the broader markets with significant open interest in the derivative segment, which could trigger off a correction ahead of the Union Budget,” said Hemang Jani, Head - Advisory, Sharekhan.

At skyhigh valuation of 53-106 times trailing price-to-earnings multiple basis or two-three times trailing price-to-book value (as on December 29 according to NSE), hopes and continuity of outperformance in terms of financial performance over large-caps have built up on mid- and small-cap indices. Hence, they should now deliver in terms of elevated expectations on earnings, according to UR Bhat, Managing Director, Dalton Capital Advisers.

Trails Nifty 50 in 2018

In 2018 till date, Nifty Midcap 100 and Nifty Smallcap 100 have underperformed Nifty 50. While Nifty Midcap 100 is flat and Nifty Smallcap 100 has gained by a marginal 0.2 per cent, Nifty 50 is up 3.6 per cent. Between calendar years 2013 and 2017 (five years), Nifty 50 has gained 75 per cent while the broader market has given returns of 143-145 per cent.

In other words, there can be volatility and bumpy rides in the medium term but these segments are likely to reward investors in the long term. After all, they have provided superior returns or rewarded risk-taking investors in the past.

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