Since the start of Jan 2018 Smallcap index had undergone a 40% drawdown which is one of the worst drawdowns next to the 2008 meltdown of 77% drawdown. To be remembered the smallcap meltdown started from the Union Budget 2018 week post the announcement of LTCG taxation
Absolutely zero bullishness in smallcap sector. However, the benchmark index Nifty 50 had undergone a drawdown of 5.6% from the peak. Lot of underperformance it witnessed in smallcap stocks. Too many stocks in smallcap corrected 50-75% from the peak.
Also, Jan 2018 PE ratio in BSE Smallcap index stood at 104 levels now dropped to 32 levels.
Nifty Smallcap / Nifty50 ratio
Here is the Nifty Smallcap/ Nifty 50 ratio chart which indicates potential value buying opportunity for smallcap stocks. Whenever the spread reaches 0.5 there has been a turnaround in smallcap stocks or in other words a value buying opportunity
From the price action perspective, there are very few points we can look into the bullish setups
- Triple Bottom Formation at 5700 levels
- Price is taking classical supports around Previous 2008 All-time high
At this point of time one can look for a possible value buying opportunity in smallcap index at current level and can anticipate outperformance the benchmark index Nifty 50 in the medium term.