FOMO or catch-up? Nearly 40 smallcaps with high FII holding up 10-40% in 2019

In the smallcap index, as many as 38 FII-heavy stocks rose 10-40 percent in 2019. The list has names like JustDial, Jindal Saw, Karnataka Bank, NIIT Technologies, Ipca Laboratories, Dr. Lal Pathlabs, DB Corp and JSW Holdings (see the table below).

Meanwhile, in S&P BSE Midcap index, as many as 13 FII-heavy stocks rose 10-50 percent which includes RBL Bank, Avanti Feeds, SRF, Info Edge, The Ramco Cements, Divis Laboratories and Vakrangee.

And among Nifty50 names, only 9 FII-heavy stocks gave double-digit returns in 2019 — Yes Bank, Bharti Infratel, Axis Bank, UPL, Titan Company, Tech Mahindra, Bajaj Auto, Bharti Airtel and RIL.

Geopolitical concerns cooling off and expectations of a stable government at the Centre fuelled risk-on sentiment in Indian equity market.

The recovery seen in small & midcaps, which were trading at attractive valuations after deep correction, could be called FoMo or fear of missing out.

However, experts refrain from naming the rally as FOMO, as yet, but they are convinced that there is now a strong case of investing in broader market.

“We would not like to term it as a big rally or FoMo as yet. Small and mid-cap stocks are just playing catch up. We are nowhere near panic buying. Investors will have opportunities to buy into this market; there is no need to chase stocks,” Dipan Mehta, Director, Elixir Equities told Moneycontrol.

“The next bull market, whenever it starts, will again be in small and mid-cap stocks which are a play on the underlying India story be it consumption driven by demographics or pick up of the capex cycle or financialization of savings/growth in retail demand for credit,” he said.

The risk appetite has picked up significantly, and the valuations of mid-caps are in a neutral zone compared to largecaps, suggest experts.

The value is emerging in select bottom-up opportunities in the mid-cap space, CLSA said in a note last week. The Mid-cap Index has still underperformed the Nifty on a year-to-date (YTD) basis.

The valuation discount to the Nifty now stands at 8.5 percent. CLSA analysis suggests that 44 percent of the NSE Mid-cap companies (59 companies) are trading below their 5-year average P/E, and on a price-to-book value basis, 41 percent of the companies (82 companies) are trading below their 5-year average.

On the other hand, 49 percent of Nifty midcap companies (43 companies) are trading below their 5-year average P/E multiple.

Experts feel that mid-caps and are likely to outperform largecaps in 2019; hence, investors should stay with quality.

“Our expectation is that midcaps will outperform largecaps, though the extent of outperformance may not be as high as in previous cycles,” Vivek Ranjan Misra, Head of Fundamental Research at Karvy Stock Broking told Moneycontrol.

“One noteworthy point is that mid-caps have a higher weight of cyclical stocks which are leveraged to the domestic growth story, and as the economy picks up in the second half of the year, mid-caps are likely to outperform,” he said.

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