The Nifty Midcap 100 and Nifty Smallcap 100 registered 69 per cent and 78 per cent gains, respectively, in Samvat 2077, leaving the Nifty50’s 40 per cent returns in the dust.
According to an ETMarkets.com Diwali poll of 14 brokerage houses, the dominance of the broad market is expected to continue, aided by a broad-based recovery in the domestic economy. “There are still many stocks in mid and smallcaps space that have a very long runway in terms of growth; and being small in size, they have an added advantage of posting higher growth in comparison to large caps,” said Roop Bhootra, chief executive officer of investment services at Anand Rathi Shares and Stock Brokers.
If the Indian economy delivers on expectations of above 7 per cent growth in the coming year, then midcap and smallcaps are likely to be major beneficiaries as their fates are closely linked with that of the economy. While the sharp run-up in midcap and smallcap stocks has narrowed the valuation discount to largecap, analysts have argued that they are nowhere near the premiums that were being quoted during the broad market mania of 2017.
“…with a recovering economy, we expect smallcaps with attractive valuations and sound fundamentals to generate greater returns than the largecap universe,” said Gaurav Garg, head of research at CapitaVia Global Research.
However, not all are convinced that broad market stocks can give an encore performance in the new Samvat. Shrikant Chouhan, head of equity research at Kotak Securities, is of the view that the sharp rerating in midcaps and smallcaps have exposed them to a “pullback” and raised the prospects of modest returns.
Over the past four months, the broader market has been more vulnerable to rapid selling from investors than largecaps largely because of the greater presence of retail investors in these pockets.
“We would suggest sticking to quality largecaps in the coming Samvat as global interest rate changes and flow of capital can provide much higher volatility in midcaps,” said Amnish Aggarwal, head of research at Prabhudas Lilladher.
