Complete Scan Report For the last 13 Years of Market, Why Mid and Small cap is always Superior to Large caps!! ~ Estate, Market, Fund, Insurance, Loan

Complete Scan Report For the last 13 Years of Market, Why Mid and Small cap is always Superior to Large caps!!

by Mr. B. Padmanaban, CFP^CM

Certified Financial Planner

Between April 2003 and March 2016, there are 13 financial Sensex years’

we have witnessed. I have done the complete analysis how

the last 13 years were.

I do believe we are somewhere similar to 2003 or 2004 level there

could be lot of upside market is going to unfold in the coming years.

· Between 2008-09, Sensex fell -38%, 2011-12 Sensex fell -11%

· and 2015-16 it fell -9%.

· Out of 13, 10 financial years, ends only positive.

· Out of positive 10, only 1 year it is 8% positive (Single digit) and

· the rest of the 9 years, it is more than double digit returns and top

· 3 highest returns are 83%, 81% and 74% respectively!

· If somebody really understood the data, they will never

· ever invest money in other instruments for sure.

Financial Year	Returns
2003-04	83%
2004-05	16%
2005-06	74%
2006-07	16%
2007-08	20%
2008-09	-38%
2009-10	81%
2010-11	11%
2011-12	-11%
2012-13	8%
2013-14	19%
2014-15	25%
2015-16	-9%

Many of us believe that mid-cap is very risky and it falls heavily than large cap. What everyone fails to notice or adamant not to accept is, it always has the strength to bounce back much higher than Sensex in the next 1 year.

B. Padmanaban,
CFP, Chennai

Mid-cap and Small cap indices were introduced in the year 2001, so there will be lot of challenges when it comes to construct the indices.

Hence, I have taken the recent two falls and how mid & small cap versus large cap performed.

Date	Sensex	BSE Midcap	BSE Small cap
08-01-08	20873	9817	13516
09-03-09	9160	2553	2866
Fall in %	-56.12%	-73.99%	-78.80%

09-03-09	9160	2553	2866
08-03-10	17102	6783	8591
Gain in %	86.70%	165.69%	199.76%

03-01-11	20561	7873	9845
30-12-11	15454	5135	5550
Fall in %	-24.84%	-34.78%	-43.63%

02-01-12	15517	5131	5556
31-12-11	19426	7112	7379
Gain in %	25.19%	38.61%	32.81%


Date	Sensex	BSE Midcap	BSE Small cap
01-04-03	3080	835	900
08-01-08	20873	9857	13516
Gain in %	577.69%	1080.48%	1401.78%

Look at the above table, firstly, I have taken the highest Sensex level it has reached for the first time to the lowest closing which lasts nearly 14 months and the fall is -56%.
In the next 1 year, it bounced back 86.7%. In case of mid and small the fall is much higher in the same period -74% and -79% respectively. In the next year it bounced back with 165% and 200%.
In the calendar year 2011 Sensex, mid-cap and small cap falls -24.84%, -34.78% and -43.63%. In the next calendar year 2012, it is bounced back with 25.19%, 38.61% and 32.81%.
Sensex, BSE Mid-cap and BSE Small cap moved from 3080, 835 and 900 levels to 20873, 9857 and 13516 level in a period of 57 months or 4.75 Years! In terms of percentage it grows 577%, 1080% and whopping 1400%.
When something moves abnormally, we should be cautious. BSE Mid-cap touches all time high on 5th October 2016 as 13,617 and it closed on 14th October 13,419, which is still today 1.45% down. Franklin Smaller companies in the 105 months period has delivered 12.26% CAGR and DSPBR Microcap delivered 14.12% CAGR when the index has delivered negative return in the same period!!!
If you compare the same with 8th Jan 2008 it moves from 9817 to 13419 which is nothing but 36.69%. In case of Sensex it moves from 20873 to 27673 which is 32.58%. In case of Small cap it has reached all time high on 7th Jan 2008 which 13,975 and it closed on 13,176 on 14th October which is still down -5.72%.
If I look at the AUM of Large cap, Multi cap and Mid & Small cap all are almost equal to 1 Lakh Crore.
When 100 rupee falls in the first year and it bounced back to same 100 in the next year.
I have captured Market peak and Market down which is 14 months, then 1 year. Falling is not a problem as long as it has the strength to bounce back. Unfortunately, we always look at the fall like the door is closed not the one which is opened!!!

Action Plan:

When we study the market for the last 15 years, whenever the market falls heavily mid and small cap affected more than the large cap which is no brainer, but is there any strategy to make use of this opportunity, my perspective as follows.
When the Sensex falls 25%, mid and small cap falls 35% and 44% which means more than 10%. When the Sensex falls 56%, mid and small cap falls 20% more.
We don’t know how the future market will behave, but in the coming years, if mid-cap and small cap falls more than the large cap keep buying more on mid and small so that in the next year it will averages out better than moving the money from mid & small to large cap!
The biggest challenge will be when we invest fully, how we can get more money to invest.
If somebody don’t have the money when the market falls, at least if we do SIP (something is better than nothing), that will help to reduce the overall loss for sure.
If I take HDFC Midcap opportunities in the midcap fund in 2009 it has delivered 143%, which is nothing but 10,000 SIP of 12 months 1.2 Lakhs becomes 2.68 Lakhs. In 2012, it has delivered 39.62% which is nothing but 1.2 Lakhs becomes 1.49 Lakhs.
In case of DSPBR Microcap it will be 1.2 Lakhs become 4.11 Lakhs and 1.5 Lakhs respectively in the above said period.
Mutual fund can be looked at wealth preservation/protection or wealth creation, it depends on the advisor as well as the client. If your objective is to preserve or protect then you can consider large cap or balanced funds.
In case, if you feel this is one of the best tool for wealth creation, then it is better to invest in mid and small cap space and once in a while big falls are inevitable and try to invest more on that time to reduce the volatility. Choice is yours and the ball is in your court!
Multi cap or diversified approach is the balanced approach and one can see the average return of large and mid & small cap, if somebody wants to take advantage of both the worlds.
Last, but not the least do not switch between the cap based on the valuations, instead stick on to your style aligned with your client goals.
Having said that don’t stick on to one fund forever, move the funds if it is under-performing.

P.S. My answer is very simple, am in the business of wealth creation and all my clients are retail clients only, so no need to change the strategy for those clients whose investment is longer term.

Secondly, when I keep writing the mails, and I communicate what I am driving them and you will not believe me all my clients are equally aggressive or more than me.

Whenever the market falls in the last few years, my clients have invested more and nobody asked me when to exit. It is not easy, but if we are determined it is possible. I always go with my guts and style, listen to everyone and follow whatever I believe. It's after all one life to live, the reason being on my own is to exercise my option and do not trade this for anything.

For those risk averse and retired people I would recommend balanced funds which have the ability to generate 12 to 15% comfortably without any tax implication is the greatest investment.

B. Padmanaban, CFP^CM
Certified Financial Planner

www.fortuneplanners.com

98843 49173

padmanaban@fortuneplanners.com

Estate, Market, Fund, Insurance, Loan

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