Small & midcaps wipe out losses as over 30 stocks turn multibaggers in 2020

Big gains in small packet. This has turned out to be true for broader markets in the year 2020 so far. The S&P BSE Midcap index and the S&P BSE Smallcap indices turned positive for the year 2020.

The S&P BSE Mid-cap index closed at 14,967 on December 31, 2019 while the S&P BSE Small-cap index ended at 13,699 on the same day. Both the indices fell below 10,000 levels in March, but managed to get back towards 15,238 on the Midcap index, and 14,990 on the Small-cap index front, as on August 28, 2020.

It took 8 months for the broader markets to reverse losses while the S&P BSE Sensex and the Nifty50 are still negative for the year 2020 so far. After a strong rally in the year, some consolidation cannot be ruled out but the larger trend still remains intact, say experts.

Strong global liquidity, expectations of normalcy in the economic activity, low-interest rates, attractive valuations, as well as growth potential are some of the factors which have made small & midcaps attractive for retail investors.

“Before starting a longer better bull trend, the market always shakes everyone and thereafter whenever rally comes earning yield, valuations along with some growth visibility mid and small outperform large-caps in that particular year by a good amount,” Pritam Deuskar, Founder of Wealthyvia.com told Moneycontrol.

“Broader base is the initial phase and then subsequently it is narrowed down to high earning growth sustainability where multibaggers are created. The last 3 years of the bear market in small and midcap ended,” he said.

He further added that unlock and delayed recovery can only make them stagnant otherwise good companies will be separated from a broad base. The market has already started doing that.

There are as many as 36 stocks in the small & midcap space that have gained more than 100% so far in 2020. These include Deepak Nitrite, Dixon Tech, Suzlon, Vaibhav Global, Adani Green, Laurus Lab and Mcleod Russel.

Broader markets have been outperforming on the back of strong liquidity from global central bankers, and chances are that the outperformance is likely to continue for some more time.

Global liquidity in the stock markets along with lifetime low-interest rates in the US treasury is chasing stocks with high growth potential, suggest experts.

Stock in broader markets, after two years of underperformance, are now trading at attractive levels and have come on top of the buy lists of many investors and traders.

“Global liquidity in the stock markets along with lifetime low-interest rates in the US treasury is fuelling rally in broader markets,” Amit Jain, Co-founder & CEO, Ashika Wealth Advisors told Moneycontrol.

“In India, NIFTY is already trading at P/E of 32, which is one of the richest valuations we have seen in the recent past. Now, once the NIFTY valuation is back to a lifetime high, now there is a high possibility that this Global liquidity may get into midcap stocks, which subsequently, may take midcaps index higher,” he said.

Many mid and small-cap stocks have registered three-digit gains since March lows while even the tail-enders within the sectors have been delivering double-digit gains since the last few weeks.

“It looks like liquidity is now chasing growth instead of being risk-averse where participants poured liquidity into safe large caps. Mid-cap and small-cap space are likely to benefit when the economy recovers fully and demand returns to normalcy,” Sacchitanand Uttekar – DVP – Technical (Equity), Tradebulls Securities told Moneycontrol.

“Right now we are starting to see widespread recovery and so mid-cap and small-caps saw their mojo getting back purely based on liquidity rotations. Any dent in sentiment or withdrawal of foreign funds from our market could steal the thunder for broader markets,” he said.