Smallcaps cheaper but not cheap yet: Sonam Srivastava urges selective investing

Sonam Srivastava, founder of Wright Research, emphasizes a selective approach to investing in smallcap stocks, which have seen corrections bringing them closer to fair valuations. Despite this, she cautions investors as many smallcaps still trade at premium valuations. The recent geopolitical tensions, particularly the ongoing conflict in Iran, have heightened market volatility and tested investor patience, especially after an 18-month period of stagnant returns. Srivastava advocates for tactical asset allocation, suggesting that investors gradually deploy cash into quality large-cap stocks during market dips rather than attempting to time the market. She identifies sectors poised for growth and reasonable valuations for FY27, including private sector banking, healthcare, infrastructure-related capital goods, and select IT services. Additionally, she advises against reckless bottom-fishing in small-cap stocks lacking earnings support and highlights the importance of maintaining a balanced portfolio amidst uncertainty. Overall, while some smallcap stocks are becoming more attractive, caution and a strategic approach remain critical in the current investment landscape.