Avoid extreme cache calls – Use Guardril for Middle and Smallcap Exposure: Alek Yadav of SECTAM Wealth – CNBC TV18

Small and Midcap Stock: Are they really the way to wealth? If yes, what should you do with small and midcap exposure, also known as SMID?

Market experts suggest that small and midcap stocks are currently expensive. So, what steps should you take?

CNBC-TV18 spoke with Alek Yadav, head of investment products in Santom Wealth, to invest small and midcap through mutual funds. If you are in the market for a long period, what mistakes should you avoid, and which funds provide opportunities to create promising money?

Here are edited parts:

Question: The spirit of the prevailing market states that large caps are safe. The market is correct, so avoid overactive and overtook yourself with small and midcaps. Boom Post-Covid has passed. Is this sound advice? How important are small and midcap stocks and funds in a portfolio?

Yadav: Middle and small-cap stocks are really important. Some areas are not represented by large cap, and sometimes the market leader is a midcap or small-cap. For example, in auto auxiliary, some companies create specific parts for automobile manufacturers and are middle and smallcaps. If you are in touch with such areas, you need an allocation for MID and Smallcaps. While the middle and smallcaps are currently expensive, a small allocation still makes sense.

Question: Let’s consider some historical examples. While history does not guarantee future returns, have SMIDS proved to be effective to plan funds often to plan long -term portfolio?

Yadav: In the last 20 years till April 2025, the midcap has improved the large cap and the small cap has also improved the large cap. However, some periods greatly affect the returns. Since March 2020, we have seen a strong bull market for the middle and small cap, promoting CAGR. But long -term charts suggest that from May 2005 to August 2013, the large cap improved the middle and smallcap. Similarly, during covid improvement, large caps were better. Currently, MID and Smallcaps are better performing.

Question: The market cycle affects that the market capitalization category better. We have reviewed data from 2005 to 2009, 2016 to 2020, and now. Can you explain the trends?

Yadav: Generally, middle and smallcaps are high beta, which means they perform better in bull markets. During the bull market from 2005 to 2008, mid and smallcaps performed better, with small caps much better. During the global financial crisis, the large caps fell to the middle and smaller. This pattern was repeated from 2016

From 2016 to 2018, Mid and Smallcaps gave 100% returns with some mutual funds. But from 2018 to March 2020, during Kovid, they weakened.

Question: Broadly, in the bull markets, small and midcap outperform, while in improvements, large caps improve.

Yadav: Absolutely.

Question: From May 2005 to April 2025, midcap shows the best performance. Is it appropriate to say that a decent midcap fund held for a long time will be beneficial?

Yadav: Till August 2013 and during Kovid, the large cap improved the middle and smallcap. Post-Covid, Mid and Smallcaps have improved. However, mid and smallcap mutual funds have improved their indices, adding some alpha.

Question: Many people try to find time in the market, bulls buy midcap funds in markets and sell in bears markets. Since October, it has been challenging. Is this not a counter -protest? How should investors manage the admission and exit time in midcap funds?

Yadav: The best way is to start with a benchmark. For example, India’s total market cap is about 70–75% large cap, 20% midcap and 5% small cap. This is your initial universe. Allocate accordingly, depending on your risk profile. If you are young and aggressive, you can allocate 30–40% middle and smallcap.

For conservative investors, 10–20% can be appropriate. Currently, an aggressive investor may allocate 30% and a conservative. Using such a benchmark prevents more dependence on cash calls. In 2022, mid and smallcaps fixed 15–20%. From 2023 to September 2024, there would have been a mistake remembering 50-60% rally. Therefore, it is prudent to use the allocation range.

Question: In today’s environment, what should a medium -risk investor do with a minimum five -year horizon?

Yadav: As I mentioned, a 20% midcap and 5% smallcap allocation aligns with normal market cap weight. This is appropriate.

Check out the video for more info