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Last Updated : Mar 09, 2019 08:31 AM IST | Source:

Suggest investors to play safe as near-term overhangs persist: Reliance Securities

An analysis of market-capitalisation to GDP ratio reveals that India following a sharp erosion in its market capitalisation appears to be quite attractive compared to other developed markets.

Moneycontrol Contributor @moneycontrolcom

Rajeev Srivastava

In the last two weeks, escalating geopolitical tensions with the neighbourhood nation continued to dominate Indian equities, but broader indices remained resilient with Nifty50 index and BSE Sensex ending the month with marginal gains.

All thanks to the foreign portfolio investors (FPIs) that infused over Rs 17,200 crore into Indian equities in February. In January, FPIs were net sellers in the Indian equities.


Growing prospects of the Modi-led NDA government coming back to power in the upcoming general elections and improving the outlook for banks in the wake of remarkable improvement in asset quality recorded in the December 2018 quarter saw renewed buying interest in the Indian equity market.

The frontline key indices (Nifty 50 index & BSE Sensex) have corrected 7-8 percent in the last six months led by a liquidity crisis in MSME segment followed by IL&FS saga, geopolitical trade war and unwinding of fiscal stimulus by the global bankers, but from a market capitalisation perspective, investor wealth has eroded significantly.

A sharp correction in mid and smallcap stocks was the prime reason for the erosion of wealth of BSE companies as their earnings could not keep pace with their rising valuations along with corporate governance issues and liquidity crisis.

In the last six months, Nifty midcap and smallcap indices fell by 16 percent and 21 percent, respectively.

An analysis of market-capitalisation to GDP ratio reveals that India following a sharp erosion in its market capitalisation appears to be quite attractive compared to other developed markets.

This ratio currently stands at 74 percent compared to 88 percent seen in September 2018 prior to a liquidity crisis. However, the ratio for the USA and Japan stands at 157 percent and 118 percent, respectively.

A huge discount shows that the Indian equities still offer a decent opportunity for long-term investors.

Meanwhile, the near-term overhangs pertaining to geopolitical tensions, general elections, and ambiguity over fiscal deficit may be a cause of concerns for investors, but we believe the Indian markets should witness a healthy rally especially in the second half of 2019.

We suggest investors to play safe with the frontline stocks owing to near-term overhangs resulting in an increase in the risk premium for midcap and smallcap stocks.

However, in the long-term quality midcap stocks, which have corrected sharply in the last year also offer promising opportunity.

In last one year, the Nifty midcap index has declined over 17 percent since January 2018, while in the last three years, in terms of absolute return, the Nifty midcap index has gained over 30 percent.

(The author is Head Retail Broking, Reliance Securities)

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


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First Published on Mar 9, 2019 08:31 am
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