Mid and small-cap stocks have been witnessing healthy gains of late and the ongoing rally in these stocks may sustain, said Yash Gupta, Equity Research Associate, Angel Broking in an interview with Moneycontrol.
Besides, he does not expect any big downgrades in Nifty EPS for FY22 considering higher earnings growth from commodity companies.
1. Mid and small-caps have outperformed the benchmarks this year so far. What is driving the rally in mid, small-cap space? Can it sustain?
A) Apart from rising retail participation in mid and small-cap space, we believe that expectations of normalcy resuming is corroborating with management comments for the Q4 results, which came in ahead of market expectations. Hence the mid and small-cap performance has outdone that of large-cap in the last two to three weeks. Yes, we expect this rally in quality mid and small caps to sustain given the underlying strength.
2. A surge in retail investors is also seen as a factor that is pushing the market higher. There are also concerns that retail investors are buying low-grade small-cap stocks driven by FOMO (Fear Of Missing Out). What do you think?
A) Yes, as discussed above, we have seen one of the highest retail participation in the market along with the opening of a number of accounts. As these are riskier investments in nature, we suggest new retail investors buy good fundamentally strong companies rather than focusing on making quick money in penny stocks. Any Negative news can change the market direction very quickly and investors will find it difficult even in selling all these penny stocks.
3. In a bullish market, even low-quality stocks rise due to hectic buying. How to distinguish quality stocks from fundamentally weak ones?
A) Investors should always buy stocks that are fundamentally strong. Investors should use a certain ratio like revenue and PAT growth in the last 5 years, strong return ratios and reasonable PE (price to earnings). All these ratios will help investors not to buy low-quality stocks.
4. What are your views on FY22 earnings? Do you expect a downgrade in Nifty EPS in FY22?
A) Q4FY21 was an all in all good result season and companies have posted good sales growth and even some sectors like metals have posted turnaround results in the last 2-3 quarters. We don’t expect any big downgrades in Nifty EPS for FY22 considering higher earnings growth from commodity companies.
5. What sectors will lead the rally from hereon? Pharma space underperformed in May. Do you think this space has some steam left?
A) In the last 3 months pharma has underperformed and we expect the same to continue for some more time as the results of Q4FY21 were not up to the expectations. We expect the rally in steel and BFSI sectors to continue along with this. Reopening theme stocks like PVR, Lemon Tree will continue to rally as the second wave cases have come down in the last 15 days.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.