Despite their periodic underperformance and the recent drubbing in the markets over the last few months, the small- and mid-cap companies are expected to outperform the larger ones over a period of time. Based on recent indications, particularly post general elections, it is believed that the small- and mid-cap companies will take the baton in their hands as they have potential to woo big-ticket investments in the days to come, says a latest market research done by Angel Broking.
After staying away from Indian bourses for the last few months, the institutional investors are now back with a bang and these players will consider investing in small- and mid-caps despite the drubbing over the last few months as both of them are expected to bring in better valuations for long-term investments, the broking house said.
Based on the available data post election results, it was found that the small- and mid-cap indices have outperformed the Sensex with a high return of 42% and 34%, respectively, compared with the Sensex return of 20%. This is indication enough that institutional investors? interest is back into this neglected segment of the market, the research pointed out. Given the reasonable valuations at the current juncture, one would see investors flocking towards these companies.
Except two or three years, it is evident from the fact that small- and mid-cap companies had done well and outperformed the larger ones. If one would consider the returns of these indices since April 2003, these indices have appreciated by 629% and 469%, respectively as compared to the Sensex?s 376% till date, the research said further.
On the valuations front, while the Sensex has recovered substantial ground from the lows it hit in March 2009, it is believed that there is room for investors with a longer-term horizon. A slow and steady rise, along with measured corrections, is very much on the cards for potential investors, particularly on the small- and mid-cap companies based on the fact that India has displayed the true characteristics of being ?decoupled? in some sense while the global downturn has pushed many developed and emerging economies into recession. This provides an edge which is expeted to attract higher capital.
Secondly, ample liquidity in the global system and limited alternative investment markets will ensure that India receives a decent share of the global capital pie.
The domestic economy is at the beginning of another upturn which will be reflected in the strong GDP growth and the earnings over the next few years, giving the investors the chance to turn towards small- and mid-cap compnies. Also, lower cost of funds on account of lower interest rates will aid the recovery and support valuations.
And finally, a stable government at the Centre and expectations from it regards moving ahead with the various long-pending and long-term reforms will keep investor expectations and interests high which will certainly benefit the small- and mid-cap companies in a big way, the research added.