When we develop doubts, sustaining the valuation becomes a significant challenging. The other challenge is that we may have overestimated the corporate governance standards in many of these companies. Money is not cheap and so you are seeing the pressures coming to these companies which are the first signs of headwinds. You also have margin pressures coming from cost of capital. One, even to sustain the valuations which are prevalent in the small and midcaps, the companies are seeing headwinds in terms of higher commodity prices, higher oil prices and stuff like that. In order to sustain that kind of valuation, the company would need to show performance and very clear reliable corporate governance. We must remember that we have given higher valuations to small and micro caps, bigger multiples than you would for established stable businesses. That is really the tragedy that is unfolding now.ĭo you feel a little uneasy that mid and small caps have corrected so much while the Nifty continues to hold out at 10750? Do you think that the selloff in mid and small caps could get exaggerated now? You yourself are saying that we could see more of these corporate governance stories open up as time passes. The tragedy is it works too well for a long period of time, making us believe that it was for real. Going forward, I expect more problems of this type to surface because ultimately if you do not have stocks of good quality, going down the quality ladder never works and that is something which is universal -whether you are a sell side brokerage, whether you are an HNI, whether you are an individual investor or a portfolio manager. We have gone a few steps down the quality ladder trying to find other things which could potentially qualify to be a great stock. The supply has been very tight in extremely reliable stocks. Broadly, a common trend in this cycle is we have not found quality ideas where large sums of capital can be easily deployed. I would not comment on individual investors. Some of these stocks are dominated by institutional investors and are recommended by some classic long term decent brokerages? Microcap hunter Shyam Sekhar, Chief Ideator & Founder, ithought, tells ET Now that he is betting on the rural, domestic facing services and finally t he durables themes.Īuditors to some of the midcap stocks are raising concerns about their accounting policy and corporate governance.
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