- India is an excellent source of alpha generation.
- The likelihood of the small cap index outperforming the large caps remains low in the short term.
- Sectors with higher review and assessment profiles include energy, materials, banking and utilities.
Some 92% of these multi-baggers started out as small caps and nearly 30% had no short-side coverage. Sector-wise, Healthcare and IT have the highest multi-bagger success rate after GFC, while Real Estate, Utilities and Telecom/Media have lagged behind (introduced in 2020). According to their selection mechanism, Jefferies highlights the items below as potentially outperformers:
Jefferies observes that, on average, small cap cycles lasted about a year, with the smallest cycles lasting 3-4 months, while the longest lasted nearly 2.5 years. Cycles usually started following a market correction, so perhaps the next cycle will coincide with the overall market recovery.
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However, in the short term, if history repeats itself, the likelihood of the small cap index outperforming the large caps remains low despite some supporting factors.