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Small-Cap Stocks: Is the Cool-Off Ending?
24 Dec
Summary
- Policymakers cooled mid- and small-cap stock inflow mid-2024.
- Measures included pruning F&O margin stocks and MTF availability.
- Cooling periods typically resolve within two years.
In mid-2024, a noticeable shift occurred as policymakers and regulators expressed concerns about the significant influx of capital into mid- and small-cap stocks. To manage this trend, several measures were enacted, including a reduction in the number of stocks eligible for margin trading within the futures and options (F&O) segment and restrictions on the availability of the margin trading facility (MTF).
These regulatory actions resulted in a marked cooling of activity within the small-cap stock segment, a trend that persisted for over eighteen months. Historically, such periods of consolidation and subdued market performance in this segment typically conclude within a two-year timeframe.
Given this historical pattern, the current market conditions suggest that the prolonged cooling-off period may be nearing its end. Investors are observing closely to see if the market is approaching a point where conditions will once again become favorable for small-cap investments.
