Small-Cap stocks are "on sale" & deserve to be bought now

HDFC Securities has raised the important question in its strategy report that iIf one is a long-term investors, what should one be buying? It is stated that a number of market strategists say that at this point there is one area of the market that is looking particularly cheap, especially in relation to everything else. Especially boring, higher-quality, so-called “value” small companies.

It is noted that the broad Russell 2000 small cap index has already plunged 25% since its peak last November. This is one of the sharpest, biggest falls on record. And it’s left them cheap.

Will Nasgovitz, the portfolio manager of Heartland Value Fund, a value-oriented stock fund has stated that on a price-to-earnings (PE) basis small-cap stocks remain ‘on sale’ in relation to large cap. “This is only the third time in the last 42 years small-caps have sold at this large of a discount. Within small-caps, value seems to be at a decided advantage over small-cap growth,” he is quoted as saying.

Charts show that the P/E ratios of the BSE Small Cap Index have plunged to about 15 from a high of 21 in November/ December 2021.



Even relative to the Sensex, the smallcap valuations have come back to normal levels and now deserves a look-in, the report states.



Click here to download the HDFC Securities strategy report