It’s been a long time that smallcaps and midcaps have been under performing the largecaps because most of the buying that comes have been in the largecap stocks and the index stocks. Small and Mid stocks have been seeing only marginal moves even though they have come off the most from their highs when markets were trading at all time highs last year. The valuation gap between these small and large stocks have increased substantially. A lot of these small and mid stocks have come off like anything and is trading at all time lows. Even the good stocks that continue to surprise the market in terms of results are trading at very low P/E multiples. So now I feel that it is time for them to catch up, because Im sure the reason of fall in all these stocks was the negative affect inflation could have on them. But if these companies continue to post strong results, I don’t see a reason why these should not do the catch up in terms of valuations.

During Q3 FY11, when these companies gave good results, people neglected it saying the next quarter could see the harm. During Q4 FY11 when they gave good results, people again neglected saying FY12 is going to be horrible. So what if they give good result in this Q1 FY12? Will they continue to ignore these quality stocks? I don’t think so. I feel if these stocks have not rallied yet, then it is good time to accumulate because some or the other day, market will definitely value these stocks and make them catch up in terms of valuations. Infact, after Q4 results, some of the companies have already caught up a bit, but a lot still has to be done. I honestly feel that if markets stay above support levels giving a comfort of limited downside, the small cap and mid cap stocks that are giving good results should be blessed with upside.

If you’re holding good small stocks, then I suggest you to have patience and continue to hold the stock from a longer point of view as market will definitely value the good results in those companies, it has to come and it will. Patience will always bless you. I’ll give an example, Mahindra Satyam was some day trading around 60 rupees and people were complaining about the management that they’re doing absolutely nothing. But see now, the stock has rallied up 45% to reach around 87 and the way is only up from hereon. So just believe that a good company will always make you money in the long run, continue to hold good small/mid stocks, they’ll make you money, all you need is patience and thats it.

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