HDFC Securities expects mid-caps, small-caps to outperform in 2020

HDFC Securities expects the mid- and small-cap indices to outperform the benchmarks in 2020 after two consecutive years of under-performance.

The brokerage believes that the mid-cap index to rise about 18-20% in the next year. The two-year consecutive under-performance of the Nifty Midcap relative to the Nifty50 has happened after 13 years. The last time the Nifty Midcap had underperformed the Nifty50 was in 2005 and 2006.

Even as the benchmarks continue their upward journey, the mid- and small-cap indices have delivered negative returns since January 2018. In 2018, Nifty50 rose 3.1% while the Sensex rose 5.9%. In contrast, Nifty Mid-cap index lost 15.4% while Nifty Small-cap index lost 29.1% in 2018. In 2019, Nifty50 is up 12.5% while the Sensex has gained 15.2%. The Nifty Mid-cap Index is down 5.5% and Nifty Small-cap is down 11.7%.

According to Dhiraj Relli, managing director & CEO of HDFC Securities, “The top line pick-up will take its own time. We expect the GDP to bottom out in the next quarter.” An upward revision in the direct income tax slabs for individuals in the Budget is highly expected so that the consumption demand will come back, he said.

In the last one year through November 2019, of the 1500 stocks traded on the NSE, 800 lost more than 20%, whereas Nifty was up about 11%. The share price of 92 stocks fell below Rs. 10 during the same period. The brokerage believes that the scenario of stronger companies becoming stronger is unlikely to go away quickly, as investors look quality in management and corporate governance. As a result, the top 10 companies contribute nearly a quarter to the total country’s market capitalisation.

The brokerage also observed that over the past three-four years, retail or HNI investors have taken to mutual fund and LIC policies in a big way so that they could avoid ups and downs of direct investing.

Moreover, investors are now selling stocks and MFs at faster pace than earlier in the present age of disruption. They are also shaken by the frequent changes to the composition of various indices.