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| Capitalstars Investment Advisor |
Are mid- and smallcap stocks back in favors After reeling under investor apathy for almost two years, these stocks have begun 2020 on a strong note. So far this year, the mid-cap index has gained 3 percent and the small-cap index has risen 5 percent, while the Sensex has moved up 1.6 percent.
About 300 stocks that comprise the BSE 500 index has outperformed the measure since the beginning of the year. Analysts said cheaper valuations of smaller shares and the sharp run-up in the blue chips are prompting investors to consider buying mid and small-cap stocks.
About 17 mid-cap stocks, including Indiabulls Integrated, Indiabulls Real EstateNSE 4.99 %, TV18NSE -3.51 % Broadcast, Centrum, Jai Corp, Orient Cement among others, have rallied between 20 percent and 50 percent since January 1.
“A secular bull market is ahead of us, as midcaps are on the cusp of a new uptrend,” said Pankaj Pandey, head of research, ICICI Securities. “Investors should rejig their long-term portfolios to benefit from the changing market dynamics with incremental weight on quality midcaps”.
Domestic fund houses, which invested Rs 1,218 crore or about 28 percent of the equity inflow in December into mid- and small-cap stocks, continue to buy shares in these categories.
Risk reward is tilted in favor of midcaps and small caps in 2020 as their valuations are at more than 20 percent discount to the large-caps, said, analysts.
These shares had been outperformers between August 2013 and January 2018 before they crashed due to concerns over steep valuations and the absence of earnings growth. BSE’s SmallCap index, the worst-performing index since January 2018, is up 10 percent in just 25 trading sessions.
About 75 stocks from BSE500 such as Birla Corp, Blue Dart, AdaniNSE 1.36 % Green, Welspun CorpNSE 0.82 %, Deepak Fertilisers, Chennai Petro, SAILNSE 0.89 % and Hindustan Aeronautics among others have gained between 10 percent and 20 percent since January 1.
“Though the benchmark indices are at new high there is a clear divergence between the return performance and valuation of 15 to 20 select few high-quality index stocks as against rest of the index companies as well as broader markets,” said Gaurav Dua, head – capital market strategy & investments, Sharekhan. “Thus, the risk-reward is more favorable in value stocks and select midcap companies that are played on the revival in the economy and corporate earnings in the calendar year 2020,” he said.
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