Reforms initiated by the government to boost economic activity, kick start investment cycle, and double agricultural income, among others all support smallcap companies.
The S&P BSE Sensex rallied 25 percent, while the S&P Smallcap index nearly doubled in the last three years Modi government in office. Investors who were not scared to take some risk ended up making up to 6,000 percent return in the same period.
As much as 30 stocks gave over 1,000 percent returns in the last three years which include names like Uniply Industries, Mangalam Drugs, Cupid, Capital Trust, Indo Count Industries, ITD Cementation, Dwarikesh Sugar, Asian Granito, Can Fin Homes etc. among others.
And, as much as 428 stocks in the S&P BSE Smallcap index more than doubled your wealth in the last three years of Modi government which include names like Nilkamal, Dalmia Bharat, Subros, Nitin Spinners, Avanti Feeds, SpiceJet, Welspun India, JBM Auto, IFB Industries, Dishman Pharma, LT Foods, Sterlite Technologies etc. among others.
Smallcap stocks turned out to be the real beneficiary of the Modi wave which swept across the nation back in the year 2014.
Reforms initiated by the government to boost economic activity, kick start investment cycle, double agricultural income, increase rural consumption, boost manufacturing, curb on the supply of black money and now goods & services tax (GST) all support smallcap companies.
Expectations of better than expected monsoon in the year 2017 have also turned the tide for smallcap companies. Given the sharp run-up in prices, many smallcap companies are trading at valuations which are slightly higher than long-term averages, which makes them slightly risky to own them.
Most analysts are betting on a recovery in earnings as fundamentals of most companies in small or midcap space have not improved much but priced have shot up in the last 3 years.
“The Indian stock markets have soared to new highs in the three years since the current Government assumed office. This time around, the rally was not patchy and stock specific but was rather broad based with nearly all sectors fuelling the run-up,” Prasanth Prabhakaran, Senior President & CEO, YES Securities India Limited told Moneycontrol.
“The market is on an upward trajectory supported by an improvement in the country’s fundamentals. This is clearly reflected in the earnings growth that has improved from the levels seen 3- 4 quarters ago. Although recovery is yet to be broad-based, earnings are on the path of improvement,” he said.
Analysts are betting on two big themes which will remain in focus at least in the next two years of Modi government. One is the rural theme, banking and the other is affordable housing and companies across sectors which are liked to these schemes are likely to remain in focus.
The government has been quite vocal about increasing farm output and double the income of farmers. Therefore, stocks focused on agri and/or rural consumption could be the next multibagger.
“There are many cylinders that this government has fired in order to kick start the economic engine ranging from Direct Benefit Transfers, passing of various bills to inject life in Real Estate and Banking sector, promoting defense manufacturing locally, encouraging startup culture in India by making appropriate changes in the law, and many more,” Jimeet Modi, CEO, SAMCO Securities told Moneycontrol.
“The biggest and most important is the genuine attempt by the government to curb corruption by bringing in Demonetization, restricting the use of cash above Rs 2,00,000/-, modifying treaties with tax haven countries to end the tax immunity/holiday all done prospectively so that the integrity of the system is maintained,” he said.Full coverage: Three years of Modi government