The economy is going through a difficult phase as business activity remains impacted by ongoing lockdown seen in different parts of the country, but the silver lining is that it is not as severe as was seen last year during the first phase of COVID-19, Harshad Patwardhan, CIO - Equities, Edelweiss AMC said in a D-Street Talk podcast. Investors who are looking to create wealth over the long term can look at investing in the small & midcap space for a time horizon of 3-5 years, he said. A recent report from Edelweiss AMC released earlier in May highlighted that Mid & Smallcap stocks have outperformed large caps in 12 out of the last 20 years. Here are 5 compelling reasons – Growth likely to be broad-based: Economic activity has bottomed out and recovery has surprised positively. The government actively encouraging revival with an unrelenting focus (PLI schemes). Benign monetary conditions are likely to continue which are good for small & midcaps. FPI flows are robust, domestic flows could turn: The report from Edelweiss AMC highlighted that it is a myth that FPIs don’t buy into midcaps. In the NSE Midcap 100 index, FII Holding is 17.5% which will only rise in the near future. Historical experience suggests good odds of outperformance After big mid/small-cap underperformance over ‘18 & ‘19, good chance of a reversal- already underway. If someone is looking to invest in a broader market space now then the ideal investment horizon is 3-5 years, where odds are very attractive. The front ending of returns on the way up. Government’s structural reforms: Agri laws are likely to boost agro-industry over the medium/long term, and Labor laws will improve the ease of doing business for small-sized businesses. Manufacturing & Infra push: Atmanirbhar initiative to benefit a host of smaller sectors. Incentivizing investments through tax cuts & PLI is positive for space.  Roads/Railways/Ports/Urban infra/Housing are a big benefit for downstream players. (Please tune into the podcast for more)

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