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Nearly 70 stocks in smallcap index gain over 50% in April; time to buy or stay away?

Stocks that rose more than 50 percent in the S&P BSE Smallcap index in April include Sobha, Gabriel India, Take Solutions, Zen Technologies, DHFL, Future Enterprises and Cox & Kings

April 29, 2020 / 10:08 AM IST

A rally in small & midcaps in April – well, it might sound like music to ears if your portfolio is overweight on small & midcap space, but analysts advise cautious approach while buying stocks from the broader market space amid COVID-19 fall.

At the index level, the S&P BSE Smallcap index rose over 12 percent while the S&P BSE Midcap index gained over 10 percent so far in April compared to 8 percent gain in Nifty50, and 7.7 percent rally in the S&P BSE Sensex, as on April 27.

The broader market has outperformed the benchmark indices so far in April but the action was centered on individual stocks. There are nearly 70 stocks in the BSE Smallcap index that have gained more than 50 percent so far in April, according to data collated from AceEquity.

The list includes Sobha, Gabriel India, Take Solutions, Zen Technologies, DHFL, Future Enterprises, Cox & Kings, Bajaj Hindustan, HCL Infosystem, Kwality, and Eros International.

Note: The table is for reference and not a buy/sell idea

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Now the question is, should an investor trust small & midcaps amid the fall? Well, the large part of the analyst community is of the view that if you are a seasoned investor then you could experiment with the broader markets, but if you are a new investor or someone who has a small portfolio then it is better to stay with largecaps.

The COVID-19 pandemic has created a unique situation in the market. Nobody is sure how the situation is going to unravel, and you should be extremely cautious about your finances and investments, suggest experts.

“Small and midcaps have been taking the brunt of the economic slowdown with no concrete recovery. In the near future, the condition may deteriorate further,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor told Moneycontrol.

“It will take considerable time before the economic activity catches pace and therefore investors with small and midcap focused portfolios should assess their position and exit if the losses are too much to bear and use the proceeds later to recreate portfolio when conditions improve,” he said.

The rally in the broader market space is largely on account of expectations of a stimulus package from the government to help the economy get back in shape as most economists across the globe have slashed their GDP growth forecast for India.

The recent one to slash India GDP forecast was domestic rating agency Crisil. It nearly halved its GDP forecast for India to 1.8 percent for 2020-21 while projecting total losses of Rs 10 lakh crore or Rs 7,000 per person due to "disastrous" lockdowns to control COVID-19 pandemic.

“Amidst continued deterioration in the economy, small and mid-caps have really been hit hard. But, this is a matter of reality, those who are strong and large will lead as and when things start to look brighter,” Umesh Mehta, Head of Research, Samco Securities told Moneycontrol.

“It is also feared that some small and mid-cap companies might go into oblivion in dark times like these. Some of them may even destroy complete values,” he said.

Mehta further added that as a prudent approach one may consider switching from such funds to large-cap frontline funds. This would certainly be a difficult decision, but it would pay off in the long run.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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