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Stretched valuation in the broader market was an overhang but investors should focus on stocks which can deliver growth in the next 2-3 years. With the recent corrections, most of the smallcaps appear less expensive.

The S&P BSE Smallcap index plunged by about 8 percent while there are many stocks which saw a double-digit cut of up to 40 percent so far in the year 2018. But, look who stood the test of time were many smallcap equity funds.

More than 20 equity funds outperformed the S&P BSE Smallcap equity index in the same period. The S&P BSE Smallcap index slipped by about 8 percent compared to 2 percent fall seen in the net asset value (NAV) of HDFC Small Cap growth fund, followed by 4 percent decline seen in the SBI Emerging Business.

Indiabulls value Discovery slipped by about 5 percent, and L&T Emerging Business also witnessed a similar decline which was still lower than 8 percent fall seen in the S&P BSE Smallcap index.

The broader market started underperforming even before the Budget was announced. The selling got further accelerated soon after the Budget was announced and sudden rise in US treasury yields which led to some money moving out of equity markets to bonds globally.

The Small & Midcap stocks which were trading slightly ahead of their long-term averages got hit the most once investors started booking profits at higher levels.

“This group (small & midcap) was the biggest beneficiary of the largely indiscriminate rally last year and is likely to lose most of its accrued gains as prices readjust with underlying fundamentals,” Piyush Sharma, Co-founder & Portfolio Manager, Metis Capital Management Ltd said.

“For everyone else, our recommendation would be to take eyes off of the ticker tape and focus only on clean underlying earnings,” he said.

We have collated a list of top 20 stocks which helped fund managers to beat the index at a time when most stocks collapsed in double digit. The list includes stocks like Sonata, Redington, Aarti Industries, KEC International, Dilip Buildcon, and TV Today Network.

Additionally, P&G Hygiene, Elgi Equipment’s, GE Shipping, Kirloskar, Solar Industries, and Divis Laboratories. Sterlite Technologies, Hexaware Technologies, Gujarat Heavy Chemicals, Elgi Rubber, Jubilant Lifesciences, Phillips Carbon, Rane Holdings, Ramco Cements, Ipca Laboratories, Lakshmi Machine, HEG, and Carborundum Universal.

Stretched valuation in the broader market was an overhang but investors should focus on stocks which can deliver growth in the next 2-3 years. With the recent corrections, most of the smallcaps appear less expensive.

“If the correction is so high and it is in high-quality stocks, it is advisable to maintain or average the respective stocks,” Vinod Nair, Head of Research at Geojit Financial Services .

“It is also a good time to measure your portfolio risk and accordingly add high-quality blue-chips and reduce high beta stocks. Higher exposure to defensive stocks which are available at fair valuation will work in the long-term,” he said.

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