Sensex at record high but smallcap investors are waiting for Secret Santa

NEW DELHI: The rally that began post the pandemic-induced crash in March 2020 had turned out to be one of the most hated bull markets and now the ongoing bull run is hardly being celebrated by smallcap investors.

So far in the calendar year 2022, Nifty has advanced around 9% while Nifty Smallcap 100 index is down around 11%. Both Nifty Junior50 and Nifty Midcap100 have also underperformed the broader index by delivering 4% and 6%, respectively on a year-to-date (YTD) basis.

Within the Nifty Smallcap 250 index, a majority of 136 stocks have been wealth eroders in 2022 with Dhani Services, Brightcom, Tanla Platforms, Zensar Tech and Nazara Technologies down up to 71% this year.


"In a typical bull market, the big boys always lead the upside and then gradually small and midcaps follow suit. Largecaps are the first ones to join the party. As the momentum builds up further, mid and smallcap ones will also start moving," equity strategist Kranthi Bathini of Wealth Mills Securities said explaining the divergence between the two worlds of large and smallcaps.

Despite the wealth erosion, at least 10 stocks have turned multibaggers within Nifty Smallcap250. Top guns include Mazagon Dock (215%), Bharat Dynamics (144%), RVNL (124%) and Karur Vysya Bank (119%).

StockEdge co-founder Vivek Bajaj points out that while there is underperformance at the index level, if we closely analyse all these indices, many stocks have significantly outperformed the market.

"The index represents the broader market, but one should understand that the broader market functions on a sector rotation basis. Hence one should not look at this comparison between Nifty and other broader indices on a standalone basis and make a judgement," Bajaj said.

What should investors do?
Analysts are expecting the momentum in the broader market to come up but with a lag, like in the past.

Dalal Street veteran ArunaGiri N who runs TrustLine Holdings expects the broader market to rally in December just like how Sensex has been doing in the last few weeks.

"With a reversal in the dollar index (fallen by over 6%+ from peak) and return of FII flows, we are positioned well for momentum in the broader space. With signs of easing inflation in the US and the consequent fall in the dollar index on expectations of fewer and smaller hikes by Fed, the tide may be turning for FII flows into emerging markets. If that happens, it is a question of time before the broader indices breach the old high and set a new record," he said.

Analysts also point out that euphoria is missing on Dalal Street, which indicates that the bull run may have more legs. As the late Sir John Templeton had once said, bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.

(With data inputs from Ritesh Presswala)

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