Ace investor Shankar Sharma on when to jump off the 'Small Cap Bullet train'

Ace investor Shankar Sharma is the latest word of caution on the froth building up in the small-cap segment. In a post on X, Sharma said," The only train you should jump off when it's going at full speed, and not when it's slowing down, is a Small Cap Bullet Train."

Sharma's post comes even as the nervousness among small and micro-cap stocks continue. Over 80 percent of stocks in the BSE Small-cap index have seen negative returns since February 19 when the index started falling. Analysts have pointed to sudden fall in small- and mid-cap space to the stress test of mutual fund schemes investing in these stocks.

The Association of Mutual Funds in India has asked fund houses to conduct stress tests on their mid- and small-cap schemes based on last month data and disclose the findings before March 15. 

The stress test will ascertain the time frame taken to sell 50 per cent and 25 per cent of the small- and mid-cap portfolio without eroding the gains accrued. Keeping in mind the nature of small and midcap stocks, investors have been advised to exercise caution in allocating funds, directly in stocks or through mutual fund SIPs. Sebi chairperson Madhabi Puri Buch said there are pockets of "froth" in small and mid-cap stocks which appear like "irrational exuberance" to the capital markets regulator.

Buch also said that Sebi has evidence, pointing to signs of "price manipulation" in the small and medium enterprises (SME) segment, and asked investors to be more cautious while investing in the risky segment.