It was the midcap and small-cap indices that outperformed BSE Sensex and Nifty50 in the month of August, as global and well as domestic brokerages turned bullish on midcap and small-cap stocks.
It was the midcap and small-cap indices that outperformed BSE Sensex and Nifty50 in the month of August, as global and well as domestic brokerages turned bullish on midcap and small-cap stocks. In the previous month, while the benchmark Nifty 50 managed to gain only 4.6%, the Nifty Smallcap 50 jumped 10% and the Nifty Midcap 50 managed a rise of 9.6%. Infact, since the unlocking of the country began, midcap and smallcap stocks have outperformed the benchmarks. Analysts say, cut in corporate tax and policy actions could bring the momentum back to the small and midcap stocks.
“The Nifty Midcap 100 12-Month forward P/E is at a premium to the Nifty 50 but still lower than the premium seen in December 2017,” said brokerage and research firm Motilal Oswal in a report. Looking at this calendar year, the report highlighted that pharma and chemical companies continue to outperform in the small-cap space. Laurus Labs has jumped 215% this year, GMM Pfaudler is up 199%, Granules India has surged 155%, while Dixon Technologies has gained 113%. Additionally, in the midcap space, 5 companies have returned investors more than 50%. These included Escorts, Ipca Labs, Vodafone Idea, Tata Consumer, and Ajanta Pharma.
Earlier last month, global brokerage and research firm Morgan Stanley too gave the small and mid-cap space a thumbs up. “Smaller firms are likely to benefit more due to their operating and financial leverage. SMID valuations are looking attractive relative to GDP and money supply, setting the stage for outperformance versus large cap stocks in the coming months,” Morgan Stanley said. Mid-cap and smallcap stocks have been largely muted since 2018. Although the mid-cap indices and stocks are up, outperforming the benchmarks, the Nifty Mid-cap-100’s market cap is down 24% from its peak. Looking at Nifty 50’s market capitalization, it was just 1% shy of December 2019 levels. Historically, the market capitalization of the indices recouped losses within a year of a criss.
Apart from beating the benchmark index, smallcap and mid-caps have also beaten the defensives, which are often touted to be safer havens. While Nifty Smallcap 100 was up 12% in August, defensives like the consumer sector along with healthcare and technology were down 1% each. However, on a year-to-date basis, the midcap and smallcap 100 indices are still in the negative while these defensive sectors are trading with gains.