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    Smallcaps still 28% away from 52-week highs! How to play this bottom-up segment

    Synopsis

    Meanwhile, between 2017-2022, 4,000 smallcaps remained smallcaps. Just 26 smallcaps turned midcaps and only one smallcap turned large cap. The average return by those that remained smallcaps during this period was 5.3 per cent annually; the ones that became midcaps delivered 40 per cent return oan average while the only smallcap that became largecap delivered 55.8 per cent return annually.

    Smallcaps still 28% away from 52-week highs! How to play this bottom-up segmentiStock
    NEW DELHI: While the largecap benchmark indices are about 5 per cent away from hitting their 52-week highs, Nifty Smallcap 100 at Tuesday's intraday value of 9,457.80 still needed another 28 per cent gains to hit its one-year high of 12,047.45.

    Analysts see reasons to believe smallcaps may outperform going ahead, especially in an environment where interest rate cycle seems to be peaking. They however warned smallcaps are a bottom-up play and that stock selection holds the key.

    Data showed a total of 646 smallcap stocks from the broader 907-constituent BSE Smallcap index needed at least 20 per cent rally to revisit their 52-week highs. At least 300 of them required at least 50 per cent surge to revisit their 52-week highs and 76 in fact needed multifold jump to revisit their one-year highs, data compiled from corporate database AceEquity suggests.

    Gopal Agrawal of HDFC AMC said whenever the interest rate cycle starts peaking and there is a moderation in interest rates, small caps tend to outperform.

    "I feel there is still room to invest into smallcaps at this point of time, but the great move will start whenever you really see the interest rate cycle peaking out actually. I would say that from now onwards the staggered approach is the right way rather than just putting big money into smallcap at this point of time," he told ET NOW.

    Dipan Mehta, Director, Elixir Equities said it is the typical pattern that in a bull market, it is the large cap stocks which start to rally, followed by midcap and finally small caps. The other way around, in a bear market or the first stance of correction, it is the large cap stocks which start to flatten out first, followed by midcap and small cap stocks, he said.

    A 20-year study, as per a WhiteOak Capital MF presentation, suggested there were only 0.9 per cent of smallcap stocks that moved to midcap category between 2015-20 and that none of them could become largecap during the period. Between 2010 and 2015, the percentage of smallcaps turning midcaps was 3.4 per cent and largecap 0.2 per cent. The maximum conversion was seen in 2000-05 when 5.3 per cent of smallcaps moved into the midcap category.

    Meanwhile, between 2017-2022, 4,000 smallcaps remained smallcaps. Just 26 smallcaps turned midcaps and only one smallcap turned large cap. The average return by those that remained smallcaps during this period was 5.3 per cent annually; the ones that became midcaps delivered 40 per cent return oan average while the only smallcap that became largecap delivered 55.8 per cent return annually.

    Stock selection thus holds key here.
    "Small and mid-caps are very much bottom-up segments of the market, and we find a lot of opportunities in that space," Santosh Singh, Fund Manager, MOAMC.

    Vinay Jain, Assistant Portfolio Manager, Karma Capital Advisors said Indian market offers a very unique breadth of opportunities, adding often opportunities are not captured by the top 50 or 100 names because of their smaller in size and fragmented nature.

    "These small and midcap companies are growing much faster than some of the larger names and we see a significant structural growth opportunity here," he told ETMarkets.com.

    Vinit Bolinjkar, Ventura Securities said the market could take a breather and within that pullback, which could be about 200-300 points on Nifty50, one can start entering the market. He however sees midcap and small cap spaces outperforming going ahead.

    (Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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