Small cap stocks outshine the rest

Mumbai: Small-sized market-capitalised stocks (stocks with smaller market capitalisation) have outperformed medium- and large-sized market capitalised stocks.

Small-cap value funds are up an average of 0.60 per cent this year in comparison to an average downturn of 4.40 per cent in mid-cap value funds and 28.5 per cent downswing in large-cap value funds.

Large-sized market capitalised stocks declined by an average value of 13.4 per cent last year. The calendar year 2001 has shaped on the same lines as calendar 2000, when the economic downturn had begun in the right earnest. However, the fall has been sharper this year, recognising the fact that the slowdown is very much in.

Thus, according to Standards & Poor (S&P) mutual fund strategist Rosanne Pane, fund managers have become cautious, aligning their strategy in line with the changed scenario. Accordingly, value-buying has replaced growth, which has made all the difference. Value-buying primarily looks at prices and the risk-reward ratio, which is usually favourable in low-priced stocks.

Growth stocks mostly comprised the high-priced tech stocks, which had reached dizzying heights last year but fell back and retreated hurriedly as they found fewer takers or no takers at all. Investors opted for small stocks, where the downsize risks were lower.

In the days ahead, feels S&P, fund managers might opt for cyclical and commodity stocks as the process of economic recovery begins to take shape. The economy is expected to gain ground sometime next year. The S&P 500, a leading indicator, has already rebounded from its lows formed on 21 September.

In the past, the S&P 500 has moved up an average of 24.10 per cent in a six-month period, before the economy began to recover. If this gets repeated the focus will fall back on growth stocks.