The recent Securities and Exchange Board of India (Sebi) warning of a potential bubble in several small-cap stocks had taken some gains off a market that the regulator believed was getting overheated. Retail investors who had looked at the substantial returns in some small-cap funds and stocks over the past year and had rushed in late to the party when the run-up had already taken place, took home losses when markets fell as a consequence of Sebi’s statement. So, should retail investors stay away from this risky small-cap category and remain safe with large-cap and blue chip-based investing? Or do small caps have a place in retail investor portfolios? I believe that small caps must make up a slice of the equity asset allocation pie for investors who are willing to wear seat-belts that absorb the wild volatility of this asset category.
