This question might have arisen in your mind. Whenever the index moves up, ask yourself these questions: How many stocks participated in the rally? Is the market overheated? Is it just a ploy of a set on investors concentrating on specific stocks to see that the market is pushed up?
Going by returns, if do you had invested in top 10 stocks it would have delivered the money. Otherwise you would have lost (-4 % to 45%) of stock invested.
Difficult to believe? Table 1 shows how the market moved in the past 22 months. If you are not a direct equity investor and you opted to invest through mutual funds, your portfolio definitely would have earned a decent return, if not at least positive.
Market cap change between 1st February 2018 and 3rd December 2019
Should you stop looking at large cap? No.
Although the Sensex accounts for 30 stocks, MSCI (Morgan Stanley Index), plans to add the following stocks in their weightage. Because of this, large caps may also participate in rally purely on account of inflows. If you wish to enjoy the ride, do the same. But have a target and sell once it is reached.
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Where should you concentrate in 2020?
In the above table, you can see how mid- and small caps took a beating. If you look at how the premium in the Index Nifty 50, Midcap 100 and Small cap 100 performed, you will notice that large caps to great extent managed to stay afloat, while Midcaps were down by 34 per cent and small caps by 53 per cent from the 2017 December level.
Does it then mean that mid and small caps have the potential to grow in 2020?
Going by past history, it appears to be so. In the past 15 years, mid and small caps never had two negative-return years. With mid and small cap, premium with large cap could widen.
The two tables show how the market behaved in the past.
It is clear that mid and small caps bounced back from the negative to positive with vigour in the past 15 years.
If you are plan to invest afresh, allocate 40-50 per cent of the fresh money in this market cap for a minimum of 2-3 years. However, if you had participated in the market rally and earned more than 25-30 per cent depending upon your risk profile and return target, you can book profit and rebalance your portfolio.
For those who are retired, although it appears compelling, it is better to restrict investment in mid and small caps to 25-30 per cent of the portfolio.