Some numbers would surely leave you flabbergasted.
As many as 71 smallcap stocks more than doubled investors’ money during the calendar year gone by, as a strong economic recovery and ample liquidity in the system drove investors to look beyond the big names on Dalal Street.
Tanla Platforms, which became a 10-bagger within a year, was the biggest surprise. The cloud communications services provider came into its own as the need for internet infrastructure and services became vital during the pandemic. The superb 886 per cent rally also drew the attention of analysts to start coverage of the scrip.
“Tanla is well placed to benefit from the rapidly growing (18-20 per cent per annum) A2P message volumes, driven by higher digitisation of the economy and rising online transactions. Tanla is a net cash company with an asset-light business model and a healthy free cash-flow generation profile. The stock is quite attractive versus its listed peers in India and globally,” IIFL Securities said in a report released earlier this month.
The brokerage has a price target of Rs 859 on the stock, meaning a 24 per cent potential upside in the next 12 months.
Alok Industries, the firm partly acquired by Reliance Industries under the insolvency process, was another big gainer of the year, constantly hitting upper circuits. The stock surged over 600 per cent during the year.
This was followed by Aarti Drugs, a beneficiary of the boom in the active pharmaceutical ingredients (API) space. The stock climbed nearly five times during the year, returning 387 per cent.
Analysts at Axis Securities said the company has a strong product portfolio and is splurging on new projects that can drive growth.
“Aarti Drugs has planned a Rs 600 crore capex to be spent in seven projects over the next 3-4 years. The capex breakup comprises 20 per cent for maintenance, 40 per cent for backward integration and 40 per cent for greenfield expansion. This capex has potential to generate Rs 1,500 crore sales,” said the Axis analysts, who have a price target of Rs 825 for the stock, meaning a potential upside of 17 per cent.
Among other top smallcap gainers of the year were Laurus Labs, Karda Constructions, IOL Chemicals & Pharmaceuticals, Eveready Industries, Alkyl Amines Chemicals, Dixon Technologies, Ramco Systems, Birlasoft, Marksans Pharma, Jaiprakash Associates Indo Count Industries, HLE Glascoat, Indiamart Intermesh, Suzlon Energy and Granules India. They rose 200-400 per cent.
As is evident, IT and pharma were dominant sectors among the gainers as they have emerged the biggest beneficiaries of the pandemic and the resultant lockdown. Along with that, manufacturing companies also came into focus, as the government turned its focus on Make In India under the flagship Atmanirbhar Bharat scheme.
“We have seen a surge in activity in the industrial space. The government is trying to really encourage manufacturing. The PLI scheme is going to be a big gamechanger for a few sectors, especially on the consumer durables side, where there has been strong domestic demand and huge scope for import substitution,” said Mahesh Patil, Co-CIO, Aditya Birla Sun Life AMC.
Patil believes the market is getting broadbased and there is a strong correlation between the performance of the domestic economy and those of midcaps and smallcaps.
Breaking the trend of the last couple of years, smallcaps performed better than their larger peers. The BSE Smallcap index, which has nearly 665 actively-traded constituents, surged 31 per cent year to date, outperforming Sensex’s 15 per cent return for the year.
The ETMarkets year-end survey among a dozen analysts on Dalal Street showed they believe the New Year will belong to midcaps and smallcaps.
