Midcap, smallcap stocks rebound on cheaper valuation

New Delhi: Midcap and Small Cap stocks, which had been hit hard by volatility in the Russia-Ukraine crisis, show some recovery.

On an annual basis, however, the BSE index for small and medium-sized enterprises has decreased by 4.51% and 3.73%. However, the BSE index for small and medium-sized enterprises has increased by 1.84% and 1.19% after 17 March.

Market experts still expect small and medium-sized enterprises to perform better in the future.

ICICI Securities Ltd said in a recently published report on market prospects that “The broader market indices have stayed well above the 52-week EMA (exponentially moving average) that has paved the way to witness the activity with its competitors with large companies in the coming weeks. the focus should be on accumulating high-quality medium-sized stocks. “

G Chokkalingam, founder and CEO, Equinomics Research & Advisory said that FY23 will be a year for small and medium-sized companies.

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The reason for this is that new investors enter the markets every day despite corrections. Large company shares continue to be affected due to FII sales. Many small and medium-sized stocks have corrected 30-40% and offer value. Individual themes can also be played in the medium and small company space.

The rise in medium and small companies is also led by the attractive valuations that the shares trade after a steep correction seen recently.

“Medium and small companies had been corrected before large companies. The market is undergoing sectoral churn and companies in the niche emerging segments and sectors are showing interest resulting in them exceeding,” said Amnish Aggarwal, Director-Institutional Equities, Prabhudas Lilladher.

Experts such as Siddhartha Khemka Head of Retail Research at Motilal Oswal Financial Services also expect that Mid-caps will do well during FY23. He says that given the 12-15% return expected by Nifty in the FY23 Mid-cap index, it should also provide returns of more than 15%. Investors can look selectively at medium-sized stock exchanges but take quality into account. Some medium-sized companies offer good opportunities and the same has been visible in the consistent profit growth reported by many medium-sized companies. Many medium-sized IPOs had also been successful in 2022, reflecting investors’ appetite and interest in intermediaries.

Medium-sized and small companies also offer broader opportunities in several sectors.

The intermediate capsules and small boxes usually underperform the big ones during tough times, experts say. However, the recovery is just as fast and small and midcaps tend to outperform when the recovery occurs, experts feel. Therefore, despite the short-term challenges and uncertainties of the war in Russia, Ukraine, most analysts still expect rising crude oil prices and inflation and recommend medium-sized and small companies for medium- to long-term gains.

Analysts at Jefferies India Ltd had said in their report on March 8 that the current market volatility could create investment opportunities in the medium term. The Indian economy recovered faster during the pandemic compared to initial expectations they said and believe India would have entered a period of economic recovery, driven by an expected recovery in Capex (government push) and housing, which could eventually drive a broad investment cycle. Historical analysis suggests that Midcaps tend to outperform phases of growth acceleration. Thus, the latest correction may provide a good opportunity for investors to evaluate bottom-up stock ideas, the report said.

“The bottom-up approach is the right approach with a focus on companies with strong visibility for growth, a reasonable price / profit ratio and strong cash flows,” added Agarwal from Prabhudas Lilladher.

However, investors need to be vigilant given the current macro environment and market volatility.

AK Prabhakar Hear of research IDBI Capital said that investors should choose wisely and can take clues from the trend in the coming earnings season. Many companies can face heat on profit growth led by rising commodity prices. Some sectors such as IT and Pharma that may not see a very steep impact remain safer sectors to look at, he said.

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