Midcaps, smallcaps may rule 2020 after weak performance last year; these factors can boost rally

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Updated: January 17, 2020 1:17:19 PM

With ally remaining largely narrow owing to wide polarisation last year, the stock market breadth is expected to improve in 2020 as the economic outlook is also likely to get better, a report said.

sensex, bseReforms led by strategic disinvestment and privatisation that may lead to better fiscal headroom.

With ally remaining largely narrow owing to wide polarisation last year, the stock market breadth is expected to improve in 2020 as the economic outlook is also likely to get better, a report said. The underperformance in the midcap and smallcap segment may improve over the next 18 to 24 months backed by pro-reform sentiment by the policymakers which may now start bearing fruit, annual outlook 2020 by Kotak Mutual Fund said. The data compiled in the report suggests a recovery over a 3-year CAGR basis post a sharp decline in the midcap stocks in the past years. Nifty midcap 100 market cap is currently at a 5 year low.

Source — Kotak Mutual Funds

In CY2019 Nifty largecap index jumped over 12 per cent, midcap and smallcap indices went down by over 4 and 9 per cent , respectively. “On one hand, we have the large cap Nifty index at an all-time high, and on the other domestic activity moderated further in the Q2FY20 with real GDP growth falling to a 6.5- year low of 4.5% YoY,” the report added. The structural changes brought about in the last few years along with a few shocks led to the present slowdown. With these changes coming to an end, the economic scenario may improve going forward, it also said. The key factors include:

Reforms led by strategic disinvestment and privatisation that may lead to better fiscal headroom

Faster resolution of the NBFC challenges

Larger recovery on non-performing loans

Better transmission of policy rate cuts

“With signs of improving corporate earnings, we would continue to follow our investment philosophy of Growth at a Reasonable Price (GARP) with an aim of investing in companies, which have the potential to report earnings growth higher than the market, a strong balance sheet position and stable management,” Kotak report added.

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