It is not Overpriced.
Reason 1: This so called ” overpricing ” has occured when Indian interest rates are very high. Small cap stocks move opposite of rate hikes.
Reason 2 : FII ownership in India is way too low. By this year November Indian Yields will go down significantly because of Inclusion in Bond indices. All Rating agencies have an inherent Bias in Indian rating( Google Australian Professor Salvatore Babones and Sanjeev Sanyal to get more information on Indian rating Bias). Whenever they correct it , it will be a steep correction in India’s rating. Leading to sharp decrease in country risk premiums. As per my friends in all Global Valuation teams , Country risk premium is used as denominator of all equity pricing models. So I do feel that by next year markets will improve a lot for small caps. Also for those who still feel small caps are overvalued have you not heard of Metals , Chemicals , some pharma, bottom of pyramid consumption and logistics? Some place somewhere always has a discount
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