Smallcaps surge in ’21 as investors shrug off Covid
MUMBAI: Shares of smallcap companies have stayed resilient even as the second wave of Covid-19 has disrupted business operations, with more states imposing lockdown-like curbs to restrict mobility. With small and midcap stocks outperforming benchmarks, investors seem to be shifting to the riskier segment. However, in broad market corrections, smallcaps tend to fall more than large-caps because of low floating stock.
The BSE Smallcap index has outpaced benchmarks by a wide margin this year. Year to date, the BSE Smallcap index has surged 23%, and BSE Midcap gained 15%, while Sensex and Nifty were up 3% and 6%, respectively. Even in April, when India reported the highest rise in Covid cases and states imposed lockdowns amid a health crisis, the BSE Smallcap index jumped 5%, whereas Sensex and Nifty fell, and BSE Midcap was barely up 1%. The BSE Smallcap index hit a record high of 22,360.13 on Friday.
Ample liquidity and market optimism that the impact of the second Covid wave will not be as harsh as the outbreak in March last year are fuelling the rise, analysts said. “Nifty and Sensex have been in consolidation since mid-january because of which liquidity found its way into mid
cap and smallcap segments. Also, with most largecaps fairly valued, value investors started moving down the market cap pyramid,” said Siddhartha Bhamre, an analyst at Incred Research Services Pvt. Ltd.
He added that from November 2020 till the end of February 2021, it has been a linear progression for midcap and smallcap indices, but now volatility has entered these segments.
“To add, in midcap and smallcap rally, drivers keep changing and, eventually, it boils down to stock selection art. So, even if there seem to be near-term hurdles due to macro factors, there will be names in this segment that will keep surprising
risk-averse
Bhamre added.
Smaller stocks are considered to be more in sync with the economy and typically see sell-off pressure at the beginning of an economic downturn.
However, even as economists and rating agencies have started to gradually slash India’s gross domestic product (GDP) target for FY22, investors have stayed hooked to smallcap stocks.
For instance, S&P Global Ratings on Wednesday cut India’s GDP growth forecast for the current fiscal to 9.8% from 11% set in March, stating the second wave may derail the budding recovery in the economy and credit conditions. participants,”