These midcap, smallcap shares may win over largecap stocks as economic policy turns favourable

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February 10, 2021 1:43 PM

The recent policy decisions for economic revival may be more positive for midcap and smallcap shares over largecap stocks, said domestic brokerage and research firm Edelweiss.

Stock market, Nifty, Smallcap, midcapAn expected 7% growth in global trade in 2021 will likely favour emerging markets equities such as India. (Image: REUTERS)

The recent policy decisions for economic revival may be more positive for midcap and smallcap shares over largecap stocks, said domestic brokerage and research firm Edelweiss. “We believe most froth has built-in large caps, with valuations pointing to depressed returns and consolidation,” Edelweiss said in a note. “More steam is left in the broader market — especially mid and small caps, where we recommend increasing stakes,” the note added. The government has taken a number of key policy measures over the last couple of months, including the recently announced Union Budget, in order to help the emerge stronger from the pandemic.

Key drivers for midcap and smallcap stocks

  • The higher capital expenditure announced in the Union Budget 2021 will help the economy grow and heal faster;
  • That,  in turn, will aid midcap and smallcap stocks that are more aligned to domestic economic recovery;
  • A contraction in overall expenditure looks unlikely for next three years, keeping the economy buoyant;
  • An expected 7% growth in global trade in 2021 will likely favour emerging markets equities such as India;
  • India’s exports incentives such as the Production Linked Incentive schemes could give a significant boost to the export-oriented sectors in the mid and smallcap space;
  • The monetary policy is likely to be supportive in the coming fiscal, which is now turning beneficial toward small firms;
  • Domestic funds are likely to remain buyers on dips in the smallcap and midcap space.

Although bullish on mid and small-cap stocks, the note said that there could be a correction in the next few months, which they added should be used to add small and mid-cap shares.

Top midcap, smallcap stock picks

In the automobile space, Ashok Leyland is the top pick of Edelweiss, followed by GNA Axels, Jamna Auto, and Ceat Ltd. Among realty stocks, Kotle Patil Developers is the top pick, followed by DLF and Brigade Enterprises. Ultratech Cement, Birla Corporation are the top bets in the cement space, while in the infrastructure arena, Larsen & Toubro, KNR Constructions, and PSP Projects are the top bets. Zydus Wellness and Metropolis Healthcare are the top FMCG bets while PI Industries and Navin Flourine remain top picks in the chemical space.

(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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