Union Budget 2021 has laid the foundation for double-digit growth in the economy by 2024. Mid & small-caps stocks that outperformed in 2020 will continue to remain on investors’ radar to ride the growth momentum in the economy.
The S&P BSE Midcap index rallied by about 10 percent from Budget while the S&P BSE Smallcap index rose by more than 9 percent compared to 11 percent rise seen in the S&P BSE Sensex in the same period.
The S&P BSE Sensex rose above 52000 for the first time on Monday, followed by a similar price action seen in NiftyBank, Nifty, and Nifty Midcap indices.
The growth outlook for 2021 is much better than was previously expected, with leading indicators point towards continued recovery. The Budget pegged India’s nominal gross domestic product (GDP) to grow by 14.4 percent for FY22. Meanwhile, the International Monetary Fund (IMF) has projected that India's GDP growth will sizzle at 11.5 percent in 2021 followed by 6.8 percent growth in 2022.
To ride the growth momentum, thanks to CAPEX proposals laid down by the government in Budget 2021, experts advise investors to look at the small & midcaps which are linked with economy-related sectors and consumption.
Mid & small-cap stocks continue to see more opportunity as the domestic economy recovers from the COVID shock, brokerage firms, Edelweiss said in a report.
“We see three drivers for small and midcap stocks. First is the possibility that higher government expenditure due to a more relaxed glide path will allow the Indian economy to heal faster. Mid & small-cap cap stocks are more aligned to the domestic economy and the recovery thereof,” it said.
The report further added that the Monetary policy is likely to be supportive in FY22, and the small-sized firms are now slowly beginning to get benefits of loose monetary policy which has benefited only bigger firms until recently.
And, finally, the near 25 percent rally in frontline indices has coincided with record FPI flows into equity markets. But, the domestic flows which are more focused on companies outside of the large-cap universe has been set sellers. These funds are likely to remain buyers of dips in Mid & small-cap space, explains the report.
Edelweiss estimates that Mid & small-cap space is likely to yield a large number of opportunities over the next few years and would continue to be part of the Indian growth story.
Over the last 12 months, midcaps are up 16 percent compared to a 14 percent surge in Nifty. Over the last five years, midcaps had underperformed the index by 12 percent.
The Nifty Midcap100 P/E ratio now trades at a 15 percent premium to largecaps at 22.9x (v/s 11.9x in Mar’20), said a Motilal Oswal report.
Largecaps may have outperformed mid & small-caps since Budget but experts feel that the broader market will be able to outperform the benchmark indices going forward. Hence, investors should remain stock specific.
“While largecaps may outperform mid and small-caps in the near term we believe that in the longer run broader markets will outperform the benchmark Nifty and the Sensex,” Jyoti Roy, DVP Equity Strategist, Angel Broking Ltd told Moneycontrol.
“However, we believe that bottom-up stock picking is the key to pick winners and create wealth in the long run and investors should focus on picking winners irrespective of market cap,” he said.We have collated a list of top picks from various brokerage firms from small & midcap space:
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