Mid, small-caps outdo biggies in Modi regime
The mid- and small-cap indices have outperformed large-caps in the four years of the Narendra Modiled National Democratic Alliance (NDA) at the Centre. Between May 26, 2014, when the Modi government was sworn in, and May 23, 2018, the S&P BSE mid-cap and the S&P BSE small-cap indices have rallied 86 per cent and 81 per cent, respectively, as compared to around a 39 per cent rise in the S&P BSE Sensex, the ACE Equity data shows. Analysts attribute this outperformance to the government’s proactive economic reform measures and low crude oil prices, which translated into a better operational performance for the mid- and-small- cap companies. This resulted in the stocks rallying at the bourses. Ample liquidity, especially from the mutual funds, also aided sentiment, they said. “Many small- and mid-cap stocks that operate in micro and diversified businesses gained, supported by liquidity pumped in by retail investors. Tyre, paints, chemical-related companies/ stocks also benefited from low crude oil prices. The Modi government did well on economic reform and managed to stick to fiscal-deficit targets. The markets liked this and the investors were rewarded handsomely,” explains G Chokkalingam, founder and managing director, Equinomics Research. Among individual stocks, Dalmia Bharat, IIFL Holdings, Natco Pharma, Whirlpool of India, 3M India, NBCC and Ashok Leyland from the mid-cap segment rallied 340-740 per cent during this period, the data shows. On the other hand, Reliance Communications, Bank of India, Adani Power, Reliance Power, Union Bank of India and GMR Infrastructure are some of the top losers that slipped 51-90 per cent during this period. A wider selection from the BSE 500 index — a broader gauge of the country’s economic condition as reflected at the bourses — reveals an interesting picture with select stocks rallying more than 1,000 per cent. Minda Industries tops the charts with a gain of over 2,400 per cent, followed by Avanti Feeds, KEI Industries, Caplin Point Industries, Phillips Carbon Black, Indiabulls Ventures, HEG Limited and Aegis Logistics, which have gained between 1,200 per cent and 1,700 per cent. The road ahead The following will have a bearing on how the markets play out: Crude oil prices; bond markets and the interest rate trajectory, globally and in India; corporate earnings; currency movement; inflation; and the upcoming assembly elections. In this backdrop, analysts do not expect a runaway rally, especially in the mid- and small-cap segments. Deepak Jasani, head of retail research at HDFC Securities, says mid- and smallcaps will keep throwing up surprises over the next one year, based on their small size/base, faster adjustment to emerging changes, financial and operational restructuring, etc. “Retail Investors would do well to classify their choice of mid-caps into three distinct categories: a) mid-caps that are rallying to catch up on valuation with peers without a commensurate improvement in fundamentals; b) those that have shown resolve and grown in adverse times at a fast pace and their valuations have run up; and c) turnaround cases. An investment call should be made carefully,” he advises. Sahil Kapoor, chief market strategist, Edelweiss Investment Research, on the other hand, says the large-caps will have an upper hand even as the broader market remains under pressure. “The market breadth has been weakening lately. The Nifty50 is likely to trade near the 10,000 level in the short term, and, as we approach the end of 2018-19, it is likely to be around 11,500, based on 17.5X FY20 EPS of 660 by June 2019,” he says.