Budget 2020 left everyone wanting more, but it had enough to bring focus back towards small & midcaps, which could turn out to be winners in 2020, tracking the government’s plan to put the economy on the $5 trillion path.
Keeping the fiscal math in check, the government made room for more capex and major push for reforms and consumption demand. The tweak in personal tax, higher divestment target for FY21, host of measure for rural India and attracting foreign direct investment and foreign institutional investment will go a long way in shifting gears for the economy.
History suggests that small & midcaps usually do well when the economy is growing. After 2 years of underperformance, the broader markets are looking attractive, and could well outperform large-caps in 2020, suggest experts.
“Right from the inculcation of 60 lakhs new taxpayers to infusion of 284 billion U.S. dollars from foreign direct investment in FY19-20, the Modi-led-govt has made a killing and this year is going to outperform the status quo as Fiscal Deficit is targeted to 3.5% in order to restrict outwards payments and support exports,” Kuldeep Tomar, Director, Advisorymandi.com told Moneycontrol.
“The projected target of Nominal GDP to 10% and an uptick in investment into Corporate Bonds from 9% to 15% by FPI’s has set a smooth road to make India a 5 trillion dollars economy. History states that ‘Small and Midcap stocks are known for outperforming the large-cap stocks’ and this year is not going to be any different,” he said.
However, not every stock is likely to benefit from the Budget, and investors have to more careful while picking stocks from the broader market space as the recovery in the economy could come at a slower pace.
The buildup ahead of Budget in broader markets was on expectations of stimulus support to boost consumer demand and revision for a rollback of LTCG which did not materialize. But, there are green shoots visible which suggests that recovery is of its way.
“Small and mid-cap stocks tend to perform well only in the growing economy and in upward trending markets,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor told Moneycontrol.
“This Budget was not a revolutionary one which will set the economy back on the path of growth but select mid-cap stocks in spheres of NBFCs, Chemicals, and Pharmaceuticals are looking attractive for both short and long-term investment,” he said.
In the course of the calendar year 2020, experts expect mean reversion to allow mid & small caps to catch up on their last two years underperformance vis-à-vis Nifty-50 Index, suggest experts.
Prior to the Budget day, the broader market was trading at the next twelve months (NTM) PE of 17.4x, a 12% premium to its history, even though 50% of the index was trading at a discount to their long-term multiples.
“Post the correction, the NTM PE premium to LTA for the market has narrowed to 8 percent but given that there was no strong recovery impetus in the budget, we continue to prefer large caps over midcaps over the next 12 months,” JM Financial said in a report.
“If one has a longer horizon, one can consider investing in mid and small caps given that the trailing PB of the midcap index is at 20% discount to large-cap index. In terms of sectors, we continue to recommend overweight on the consolidators (financials) and the exporters (pharma and IT combined) and midcap autos/auto ancs for recovery,” it said.
We have collated a list of midcaps ideas from various brokerage firms which are their top post Budget 2020 picks:
The proposed Union Budget 2020-21 would have been seen as a decent Budget in normal conditions, but a slowing economy and uncertain global situation required an unorthodox and effective policy intervention.
We retain a constructive view on equities based on our expectations of a gradual recovery in the economy during 2020 along with healthy growth in earnings. From the midcaps space, we like Gujarat Gas, Mahanagar Gas, Bata India, Sudarshan Chemicals and Spandana Sphoorty as top post Budget picks.Antique Stock Broking:
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