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Last Updated : Dec 20, 2018 10:26 AM IST | Source: Moneycontrol.com

Smallcaps see worst rout since 2013, should you bet on them in 2019?

After a dismal performance in 2018, the year 2019 is expected to be a good year for largecaps, but smallcaps will continue to face some headwinds

 
 
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Big gains come in small packets!

That has certainly not been correct for smallcap stocks in the recent past as they lost their charm in 2018.

The S&P BSE Smallcap index has plunged 24 percent so far in 2018 to record its worst fall since 2013 when it saw a decline of 12 percent. It plunged over 40 percent in 2011 and more than doubled in 2009.

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Multiple headwinds — starting from SEBI reclassification of MF schemes, governance issues, crude price movements, mixed results from India Inc., and high valuations — weighed on the broader market.

So, should investors buy small or midcap stocks in 2019?

Experts feel that returns from the broader market will be dependent on earnings growth.

“Midcap and small-cap stocks have underperformed significantly in 2018 due to a range of factors including higher crude prices, cost inflation, higher interest rates, demand slowdown, liquidity crunch, etc. leading to earnings disappointment and valuation de-rating,” Teena Virmani, Vice President – Research, Kotak Securities told Moneycontrol.

“We believe that outperformance of mid and smallcaps versus frontliners will be contingent upon their earnings growth which will lead to valuation re-rating,” she added.

Smallcap returns 2018

Smallcaps' performance was worse than midcaps as one out of eight stocks were in the positive terrain. Amid all the mayhem, three stocks managed to buck the trend and more than doubled investor wealth so far in 2018 — Excel Industries, Merck, and IOL Chemicals.

Stocks which rose 60-100% include names like NIIT Technologies, HEG, Vinati Organics, Nelco, V-Mart Retail.

After a dismal performance in 2018, the year 2019 is expected to be a good year for largecaps, but smallcaps would continue to face some headwinds. However, investors should use dips to get into quality stocks in the small and mid-cap space as conditions could turn favourable in the second half.

“We believe that over the coming quarters largecaps are likely to do better. Mid and smallcaps are likely to underperform until their valuations get attractive,” Rajiv Ranjan Singh, CEO - Stock Broking, Karvy Stock Broking told Moneycontrol.

“We believe that after mid-2019, with decent time correction, conditions may be favourable for mid and smallcaps to perform well,” he said.

Small & midcaps usually get attention in the election year as the government increase focus on the economy in the form of populist measures which aid in economic growth and in turn help companies in the small & mid-cap space.

After the recent correction, the whole space might not have turn attractive but there is still value in individual stocks which one can look at for a longer period of time, suggest experts.

“Since small and midcaps are down in double digits so far in 2018, there could arise an opportunity to find good quality stocks at attractive valuations in these segments but avoid averaging stocks whose fundamentals have deteriorated significantly,” Abhimanyu Sofat, Head of Research, IIFL Securities told Moneycontrol.

“We are focused on stories, which are benefiting from crude price fall. Also, we are seeing some improvement on the liquidity side for NBFCs which will help in a rebound in credit growth which will aid growth to these companies,” he said.

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Dec 20, 2018 10:09 am
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