‘Samvat 2074 will be good for markets’

MUMBAI: Ramesh Damani, a well-known value investor, expects the Indian market to have a bright Samvat 2074, driven by liquidity. Damani, 60, has been an active investor in the Indian stock market since 1989. He believes consumption will be a dominant theme in the Indian stock market. In an interview to Ami Shah, he warned that non-banking financial companies (NBFCS) and auto stocks look expensive right now. Edited excerpts: there should be some recovery as Indian companies’ profitability is at 5-7 year low. which give you tax-free return. One-year capital gains is zero. Also, it is a very liquid market, and dividends are tax-free up to an amount of ₹10 lakh. So, equities are the 7-footer team in India. MUMBAI: Smaller companies, shares of which are typically seen as riskier than the more steady large-cap firms, have been fairly attractive this year among investors, despite their steep valuations and continuous earnings downgrade.

The BSE Small-cap index rallied 41.8%, while BSE Mid-cap index jumped 33.6%, beating both benchmark indices Sensex and Nifty, which were up 21-24% so far in 2017.

Analysts say that in a bull market, small-caps tend to grow faster than large-caps, while robust inflow of domestic investors’ money into Indian equities attracted lot of buyers into smaller companies.

“In a typical bull market and expected economic recovery, it is historically proven that small-caps tend to grow faster than large-caps. Besides, domestic investors’ flow is tilted towards small-cap segment compared to FII flows that largely prefer small caps, said Dhiraj Sachdev, vice-president and senior fund manager at HSBC Asset Management.

Gautam Duggad, head of research (Institutional Equities) at Motilal Oswal Securities Ltd, also added that strong capital inflows from domestic institutions is one of the major factors responsible for outperformance of mid and small-cap stocks.

“Typically, money from domestic institutions find its way into mid and small cap stocks,” he said.

So far in 2017, this year domestic institutional investments in Indian equities were at ₹72,434.67 crore while foreign institutional investors (FII) pumped in $4.82 billion worth local shares.

Not only are the small firms rising at a rapid pace this year, their contribution to India’s market capitalisation has also increased gradually.

At current levels, BSE Smallcap index contributes 18.05% to India’s market cap, growing from 17.86% in March 2017, and 16.68% in March 2016.

In contrast, at current levels, the BSE Mid-cap’s and Sensex’s contributions to total market cap stand at 13.81% and 40.91% respectively, from 14.62% and 41.29% at FY17 end.