While the markets have come under pressure in recent months owing to concerns over a pullback in the US Federal Reserve’s quantitative easing programme and the fall in the rupee, a number of small-cap stocks have gained more than 50% over the last three months, a period when the BSE benchmark Sensex slipped nearly 5%.
As per data from Capitaline, 85 small-cap stocks have gained more than 50% during this period. Market experts feel that certain stocks are seeing value-buying. “Investors are picking up stocks trading at attractive valuations, while they are wary of companies which have huge debt burden or cash-flow issues,” said Vinay Khattar, head (research), retail capital markets, Edelweiss.
Meanwhile, some market observers are of the view that these stocks are simply recovering after seeing sharp corrections. “Some of these stocks have been heavily beaten down and are now bouncing back,” said Kishor P Ostwal, managing director, CNI Research.
The maximum number of small caps that have gained more than 50% belong to the financial space. The list includes Ravinay Trading (136.08%), Prime Capital Market (118.24%), Kelvin Fincap (150.29%), Ashika Credit Capital (67.05%) and Jayant Mercantile (67.30%). Meanwhile, Sensex scrips have gained between 7% and 45% over the last three months.
Brokerages are of the view that small caps with strong balance sheets can be good picks. “We are bullish on companies with good management and strong balance sheet. With their attractive valuations, some stocks are expected to gain in near-to-medium term,” said Dipen Shah, head (fundamental research), Kotak Institutional Equities.
In a recent thematic study released by Ambit Capital, the brokerage observed, “Small and mid caps continue to trade at record discounts to large-caps. Focusing on high-quality names from the small- and mid-cap space should be central to portfolio construction at this stage of the economic cycle.”
Foreign institutional investors (FIIs) have sold nearly $3.7 billion worth of equities due to concerns over Indian economy over the last three months, when the rupee depreciated more than 12%. During the same period, domestic institutional investors (DIIs) have bought $1.8 billion worth of shares.