The market has seen sharp correction due to excessive instability, FII selling and lack of liquidity. The small and midcap segment have faced a much fall against large-cap. The small and midcap segment saw a decline of up to 15 percent since the end of September 2024. Analysts of Nuwama Institutional Equities believe that this decline may not be a temporary shock but be the beginning of beer market, as domestic growth is slowing down and is going into a durable liquidity deficit. Apart from this, despite 15 percent correction, the valuations of small and midcaps are still high.
It is important to understand here first what is the difference between Blip and Beer Market. According to Nuwama Institutional Equities, Blip is younger, which lasts for two-three quarters. On the other hand, the beer market is a long-lasting correction phase, which shows 30-40 percent correction in two-three years. All sectors decline during the bluep. But during the beer market, real estate and industrial stocks experience large underperforms and usually suffer more than 50 percent of corrections.
Beer market has large 5 -year returns (20 percent or more) before the market. Blip falls in the early stages of the bull market and 5 years returns are 10-15 percent. In this way the beer market usually comes out when the domestic credit bicycle weakens, the liquidity decreases and a strong 5 -year rally appears in the midcaps. Blip on the other hand is the result of global weakness. The condition of domestic growth and liquidity is generally stable during blip. In addition, they do not have a big medium term rally before them.
On this basis, experts believe that most signs are pointing to the onset of beer market in SMIDS. Except for BFSI, Earnings in the SMID segment is now performing less than large-cap comrades and has gone into contraction.
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How domestic growth is affected by kareks in SMID
Brokerage said that SMID is more connected to the domestic economy than large-caps. Therefore, domestic growth slows down only when Smids experience a recession era and correction comes in them. The best way to assess this is to see domestic credit bicycle and exports trend. If the credit bicycle is getting weaker then it is a sign of domestic weakness, in which SMIDS will always underperform.