Small Cap Companies Show Resilience as Markets Move Towards Growth

Photo by Jared Schwitzke on Unsplash

In the past three weeks of April, the small cap index has shown a notable increase of 8%. This is a positive sign for the stock market as it suggests that investors are regaining confidence in small cap companies. Many good quality small cap companies that had been beaten down are now up around 10% on average, indicating that the market is moving from risk averse value investments to more growth.

Statistically, a strong up move in small cap indices after a long drawn correction is a sign of an upcoming bull market. “Smart money” would ideally want to pick up beaten down companies that have sound fundamentals when these companies are not perceived as an attractive opportunity.

Key Reasons aiding this shift

• Global inflation rate coming under control. As inflation eases, central banks are looking to pause their aggressive rate hike cycle, which has been a major concern for investors in recent months. This has helped alleviate some of the uncertainty in the markets and allowed investors to focus more on growth opportunities.

• Small cap companies are generally known for their potential for growth and innovation. As the market moves towards a more growth-oriented approach, small cap companies are likely to benefit from this trend. With their nimble and adaptable nature, these companies are better positioned to take advantage of new opportunities in the market.

What this means for you ?

The recent increase in small cap index is also a positive sign for investors who have been holding onto these stocks. Many good quality small cap companies had been beaten down in recent months, despite having strong fundamentals and growth potential. (we have a smallcase which does exactly that)

While small cap companies can offer attractive growth opportunities, investors should exercise caution and conduct thorough research before investing in any company.