Diwali to Diwali: Midcaps, smallcaps shone in a Samvat year that belonged to equity

NEW DELHI: Samvat 2076 saw renewed investor interest in smallcap and midcap stocks that delivered solid returns in the eventful year after being battered two straight years.

Largecaps, too, kept up the good show, delivering double-digit returns for the second Samvat in a row, data compiled by ETMarkets.com showed.

With smallcaps and midcaps gaining traction, analysts said the next Samvat could be a year for the second-rung stocks, while largecaps may deliver single-digit returns.


Rebound in smallcaps
Equity as an asset class delivered double-digit returns in Samvat 2076, even as one-year fixed deposit rates fell from 6.5-6.8 per cent to about 5 per cent or even lower.

Smallcaps topped the chart, with BSE Smallcap Index delivering 16.20 per cent return for the Hindu calendar year, compared with a 10.24 per cent jump in the Sensex and 9 per cent rise in the BSE Midcap Index.

Sensex's 10.24 per cent return for Samvat 2076 was similar to the 11 per cent return it had delivered for Samvat 2075 and better than 8.79 per cent in Samvat 2074. For smallcap and midcap indices, the returns for the year were best since Samvat 2073.

The BSE Smallcap rose 16.20 per cent for Samvat 2076 against an 8.75 per cent drop during Samvat 2075 and a 14.60 per cent fall in Samvat 2074. Similarly, Samvat 2076 saw a rise in BSE Midcap index after a nearly 3 per cent drop in Samvat 2075 and 8 per cent drop in Samvat 2074. The fall for two straight years was a rarity for these indices.

Analysts from a dozen brokerages that took part in the ETMarkets' pre-Diwali Survey said Sensex may rise up to 47,000 level, which suggests around 8 per cent potential rise in the index from current level. Midcap and smallcap stocks are projected to outshine their larger peers.

Binod Modi, Head of Strategy at Reliance Securities, said midcaps and smallcaps have underperformed in last two years, as ambiguity over earnings recovery hurt them.

“Going forward, sustainability in the recent pickup in economic activity may result in strong outperformance from midcaps and smallcaps. That said, the earnings recovery will not be broadbased due to fiscal constraints and absence of a sharp revival in the capex cycle. The men will get separated from the boys in the midcap and smallcap space over next one year,” he said.

G Chokkalingam, Founder of Equinomics Research and Advisory, said value stocks in the midcap and smallcap segments could be the biggest investment themes for next one year

Going by estimates, India’s absolute GDP for FY2022 is expected to be less than what it was in FY2020, as it is projected to shrink about 10 per cent in FY2021 and grow 6-8 per cent in FY2022.

Chokkalingam said leaders across sectors would find it difficult to maintain significant growth momentum next year because of dominant size of their businesses, as most of them trade at huge valuation multiples. They would make way for the smallcaps and midcaps in Samvat 2077, he said.