Doubled the investors' wealth
The rally in the broader market continues as the S&P BSE Smallcap index hit a fresh record high 15,866.14 on Thursday. The index has already rallied over 30 percent so far in the year 2017 compared to near-18 percent rally seen in the S&P BSE Sensex.
The rally in the index was led by gains in Future Consumer, Manappuram Finance, Cholamandalam Investment, Federal Bank, IDFC, Tube Investments, Prestige Estates, and Caplin Point.
Indian market is on the verge of an economic and earning up cycle especially now with the implementation of the goods & services tax (GST). Various economic reforms initiated by the Modi-led government in the last three also bodes well for the sector.
Riding the sentiment as much as 40 stocks more than doubled investors’ wealth so far in the year 2017 which include names like Indiabulls Ventures, Venky’s, Avanti Feeds, Geojit Financial Services, Phillips Carbon, Indiabulls Real Estate, JP Associates, L T Foods, Tata Metaliks, IIFL Holdings, Sunteck Realty, Prakash Industries, and Rain Industries.
“The domestic market during the past 6 month was attractively priced to reap the benefit of the higher economic growth projection as anticipated by the market. Since most of the mid & small cap stocks are a good proxy to play out the economic growth, many of these stocks doubled the investor's wealth,” Dinesh Rohira, Founder & CEO of 5nance.com told Moneycontrol.
“The sector reforms that came under the governments’ agenda actually made a noise in the market as mutual fund manager & retail investor took a huge bet on such stock to garner the value of lower price and reviving growth rate of specific stocks,” he said.
Investors are now finding their comfort in the small and midcap space. But, now every stock which more than doubled in the last one year is a safe bet.
For some stocks, investors will be better off taking some profits while in others they can hold on for better returns. Given the fact many smallcap stocks have already got the multibagger tag, future investment should be based on pure fundamentals, suggest experts.
In 2013, if you remember, most investors sought the safety of capital and in 2017 are scouting for multibagger opportunities. Most investors who invested in 2016 and beyond have been aspiring for multi-baggers. Why?
“Precedence has shown that a large number of small & mid cap stocks multiplied from Aug’13 lows. The BSE Small Cap index has multiplied 2.75x from 5100 to over 14000 from 2013 until now,” Shashank Khade, Chief Equity Advisor, and Co-founder, Entrust Family Office Investment Advisors told Moneycontrol.
From Nov’10 to Aug’13, the BSE Smallcap index had more than halved from 11000 to 5100. Why did the investors not participate in stocks then?
“The fear of capital loss amongst investors with regards to small cap stocks was the highest then, leading to mispriced stock valuations across the board by 2013,” said Khade.
The pendulum has swung to the other side now with such aversion having changed to attraction to small cap stocks. The market always has cycles in a long-term trend. Multi-bagger opportunities need to be sought in pessimistic times against the crowd.
“Given this, it is evident that multibagger opportunities are going be scarce in such situations. Aspirants need to temper their returns expectations. It defies logic to take a high risk to capital to generate high returns,” said Khade.