Even as the top-tier indices, the S&P BSE Sensex and the Nifty50, scale new highs, the mid- and small-cap segments have also seen a hot streak in recent months, with both indices hitting a new 52-week high. on Wednesday.
The S&P BSE SmallCap Index has outperformed with an 86 percent rally from its lowest intraday in March to 16,003 now. The S&P BSE MidCap Index is up 70 percent over this period, mostly in line with the S&P BSE Sensex, which has gained about 72 percent, the data shows.
Analysts attribute the outperformance to a number of factors, notably the interest shown by retail investors in achieving a quick return during the blackout period.
“Only its category / sector leaders within the mid- and small-cap companies have done well as the economy gradually opened up after a tight lockdown. The valuation gap between these leaders and the rest has grown over time. Now the laggards should catch up, too. Other than that, a lot of money from investors, especially retail investors, made its way into these two market segments during the close. All of this has resulted in small and mid-caps performing well in recent months, ”says G Chokkalingam, founder and chief investment officer of Equinomics Research & Advisory.
Despite a strong rally, analysts remain bullish on small and mid-caps and expect them to outperform large caps in 2021. Although there may be intermittent correction, stock selection will be key. Portfolio returns are more likely, analysts at Morgan Stanley say, to be driven by bottom-up stock selection rather than top-down macroeconomic forces.
“We expect broad market small- and mid-cap companies to outperform narrow or large-cap indices in 2021 because we believe the concentration of market capitalization and earnings may have peaked with the return of the growth cycle. . Expect domestic cyclicals to outperform exports, with rate-sensitive ones and consumers outperforming, while energy should underperform, ”wrote Ridham Desai, India’s head of research and Morgan Stanley’s India equity strategist. , and Sheela Rathi, his equity research analyst, on Nov. 15. co-authored report.
For their part, most economists have been recalibrating India’s prospects for economic growth following the resumption of business activity.
Goldman Sachs, for example, improved its forecast of India’s gross domestic product (GDP) to a contraction of 10.3 percent in 2020-21 (fiscal year 21), compared to its previous estimate of negative growth of 14, 8 percent during this period.
Moody’s has also recalibrated its figures and now expects India’s GDP to contract 8.9 percent in calendar year 2020 (CY20), compared to its previous estimate of a 9.6 percent contraction. Similarly, India’s GDP forecast for calendar year 2021 (CY21) has been revised upward to 8.6%, from 8.1% previously projected.
Among individual stocks in the mid-cap space, Adani Green Energy, Ashok Leyland, Balkrishna Industries, Info Edge (India) and PI Industries are trading at their respective all-time highs.
Indiabulls Real Estate, STC India, Gati, Puravankara, IG Petrochemicals, Apcotex Industries, CARE Ratings, NRB Bearings and Somany Ceramics from the small cap universe have attracted investor interest in recent months.
“In addition to expanding the market, we believe mid-cap performance will gain strength from price comfort and valuation based on historical evidence, strong earnings recovery relative to large caps and strong institutional flows.” Elara Capital analysts wrote in a Nov. 11 report.
Chokkalingam suggests that investors start nibbling on the mid- and small-caps now before economic activity fully recovers. “CY21, I think, will be the mid- and small-cap year despite intermittent corrections, as long as the economic recovery continues,” he says.
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