Indian bourses may see a sudden recovery in a roaring rally in listed mid- and small-cap stocks, as many of them are trading near or at record highs, said at least six analysts, even as overall consumption demand remained sluggish. happened.
smelly The Mid-Cap 100 Index has touched all-time highs in each of the last seven sessions, posting 19% gains so far in FY2024, while the Small-Cap Index has touched 52-week lows in each of the last seven sessions. Touched new high and added 20% from Jan 1st of current year to date.
In contrast, the benchmark BSE Sensex And this nse nifty There has been an increase of 7.7% and 8.6% respectively in the same period.
“The sharp rally in mid and small caps appears bordering on euphoria as consumption demand remains sluggish and valuations have reached unrealistic levels in most cases,” wrote analysts at Kotak Institutional Equities on Monday.
Increase in Indian economy The current financial year is seen slowing down to 6.5% as compared to 7.2% in the previous year. In the January-March quarter – the latest data available – private consumption grew only 2.8%, even as government spending boosted the wider economy. Weak demand may have an impact on the company’s earnings.
Others warned of an erratic monsoon, which could hit India’s largely agrarian economy.
Avinash Gorakshkar, Head of Research, Profitmart Securities, said, “Nothing is cheap at the moment, so investors should be very selective about midcap stocks.” If the monsoon is not as expected, then there may be a halt in the rally for some time.
The 12-month forward price-to-earnings ratio of the mid-cap index – a metric that measures the valuation of an index or security – stood at 24.1 as on June 20, while the P/E ratio of the Nifty 50 stood at 21.9. The P/E ratio for the small-cap index was down at 19.6.
The P/E ratio of the midcap index has increased from 23.5 at the beginning of the year to 24.02 in June, while the P/E ratio of the smallcap index has increased from 16.39 in January to 19.6, amid a rally in the markets.
Most mid-cap stocks are also trading above their pre-Covid multiple.
domestic demand
A strong inflow of funds from domestic investors has been instrumental in boosting valuations.
Since January 2022, mid-cap equity-oriented schemes and small-cap schemes have seen inflows of Rs 286 billion ($3.49 billion) and Rs 318.91 billion, respectively, more than double the Rs 143.45 billion invested in large-cap schemes Yes, data from the Association for Mutual Funds in India showed.
Interest in this set of stocks has prompted fund houses Pearl Oswal will launch India’s first micro-cap index fund for investors looking beyond Nifty 500 firms for hidden opportunities.
Hemant Kanawala, head (equity investments), Kotak Life Insurance, said, “Large caps can absorb as much liquidity, but when midcaps start attracting such inflows, it becomes difficult to absorb the liquidity And the valuation will be re-rated. One 97 Communications, Aurobindo Pharma, PB Fintech have been among the top mid-cap performers in 2023 adding over 40% each.
Certainly, not everyone is skeptical about the recent rally.
Atul Suri, CEO, Marathon Trends Advisory, said, “After a correction in global equities in 2022, the rally in Indian markets has been more broad-based and has trickled down to midcaps.”
Suri expects the rally in broader markets to continue, led by a revival in the industrial cycle. He identified inflation as the major downside risk to the Indian market rally.
smelly The Mid-Cap 100 Index has touched all-time highs in each of the last seven sessions, posting 19% gains so far in FY2024, while the Small-Cap Index has touched 52-week lows in each of the last seven sessions. Touched new high and added 20% from Jan 1st of current year to date.
In contrast, the benchmark BSE Sensex And this nse nifty There has been an increase of 7.7% and 8.6% respectively in the same period.
“The sharp rally in mid and small caps appears bordering on euphoria as consumption demand remains sluggish and valuations have reached unrealistic levels in most cases,” wrote analysts at Kotak Institutional Equities on Monday.
Increase in Indian economy The current financial year is seen slowing down to 6.5% as compared to 7.2% in the previous year. In the January-March quarter – the latest data available – private consumption grew only 2.8%, even as government spending boosted the wider economy. Weak demand may have an impact on the company’s earnings.
Others warned of an erratic monsoon, which could hit India’s largely agrarian economy.
Avinash Gorakshkar, Head of Research, Profitmart Securities, said, “Nothing is cheap at the moment, so investors should be very selective about midcap stocks.” If the monsoon is not as expected, then there may be a halt in the rally for some time.
The 12-month forward price-to-earnings ratio of the mid-cap index – a metric that measures the valuation of an index or security – stood at 24.1 as on June 20, while the P/E ratio of the Nifty 50 stood at 21.9. The P/E ratio for the small-cap index was down at 19.6.
The P/E ratio of the midcap index has increased from 23.5 at the beginning of the year to 24.02 in June, while the P/E ratio of the smallcap index has increased from 16.39 in January to 19.6, amid a rally in the markets.
Most mid-cap stocks are also trading above their pre-Covid multiple.
domestic demand
A strong inflow of funds from domestic investors has been instrumental in boosting valuations.
Since January 2022, mid-cap equity-oriented schemes and small-cap schemes have seen inflows of Rs 286 billion ($3.49 billion) and Rs 318.91 billion, respectively, more than double the Rs 143.45 billion invested in large-cap schemes Yes, data from the Association for Mutual Funds in India showed.
Interest in this set of stocks has prompted fund houses Pearl Oswal will launch India’s first micro-cap index fund for investors looking beyond Nifty 500 firms for hidden opportunities.
Hemant Kanawala, head (equity investments), Kotak Life Insurance, said, “Large caps can absorb as much liquidity, but when midcaps start attracting such inflows, it becomes difficult to absorb the liquidity And the valuation will be re-rated. One 97 Communications, Aurobindo Pharma, PB Fintech have been among the top mid-cap performers in 2023 adding over 40% each.
Certainly, not everyone is skeptical about the recent rally.
Atul Suri, CEO, Marathon Trends Advisory, said, “After a correction in global equities in 2022, the rally in Indian markets has been more broad-based and has trickled down to midcaps.”
Suri expects the rally in broader markets to continue, led by a revival in the industrial cycle. He identified inflation as the major downside risk to the Indian market rally.