Midcap & smallcaps readying to rally; ICICI Sec picks 6 top bets

Select smallcap and midcap stocks such as Balkrishna Industries, Trent, Natco Pharma, Deepak Nitrite, MCX, Rallis India and Bajaj Electricals may deliver up to 26 per cent return to investors during the second half of 2020, according to ICICI Securities.

The brokerage says after a lull of more than 24 months, the broader market is on the cusp of the next major bull market. The BSE Midcap and BSE Smallcap indices have corrected 29 per cent and 38 per cent, respectively, from their respective all-time high scaled in January 2018. Benchmark Sensex is down 16 per cent from its lifetime high of 42,273, scaled on January 20 this year.

“The relative ratio of mid and smallcap indices/ Nifty is at a cyclical low, and is turning up, signifying outperformance ahead after a two-year-long bear phase,” the brokerage said, adding that investor sentiment as represented by 14-month RSI (momentum oscillator) at less than 35 is at a major cyclical low, which was last observed in CY08 and CY13. In both instances, such readings laid the foundation of the next major bull market.

On a year-to-date basis, the BSE Midcap index is down 13 per cent and Smallcap index 9 per cent, while Sensex is trading 14 per cent down for the year. On the other hand, the stocks spotted by ICICI Securities have remained resilient during this period.

Rallis India has advanced the most year to date at 60 per cent. It was followed by Deepak Nitrite (up 28 per cent), Balkrishna Industries (up 28 per cent), Trent (up 17 per cent), Bajaj Electricals (up 11 per cent) and Natco Pharma (up 7 per cent).


The first half of Calendar 2020 remained highly volatile for stock investors on Dalal Street, as the benchmark equity indices jumped to hit new peaks in January before plunging to new 52-week lows in March and then stage a major rebound from there.

Overall, the start of the year was marked by a lot of uncertainty amid weak macroeconomic data. The spread of the Covid-19 pandemic, which led to a nationwide lockdown since March end, only festered the wound. Firm global cues along with monetary and fiscal measures kept the downside capped during this period.


Other analysts are, however, cautious on the market for the rest of the year due to a shaky fiscal situation and rising joblessness. Deepak Jasani, Head of Retail Research at HDFC Securities, said there is fear that stress in the financial sector may sooner or later spread to the real sector of the economy.