Mid caps show the way on Street

Even as the Bombay Stock Exchange's (BSE) benchmark index, Sensex, crossed 15000, many analysts remained sceptical as only a few heavyweights had driven the market, while others had missed the rally.

The current rally, led by small- and mid-cap stocks, which failed to keep pace with the earlier bull-run, has, however, brought the enthusiasm back into the market and now analysts expect the rally to be more broad-based.

In the April to-date period, BSE's small- and mid-cap indices have outperformed the Sensex. The BSE Mid-Cap Index rose 30 per cent in April to July 13, while the BSE Small Cap Index shot up by 32 per cent. In comparison, the benchmark Sensex grew by just over 22 per cent during the period.

Some small cap companies have performed much better than their counterparts in the mid- and large-cap segments.

KS Oils, the edible oil company with a strong presence in the north and central regions, has risen by almost 369 per cent during the aforesaid period.

Similarly, stocks such as Asian Electronics (up 265 per cent to Rs 1,067), McNally Bharat Engineering company (up 74 per cent to Rs 194), Emco Ltd (up 73 per cent to Rs 958) and Tata Elxsi (up 82 per cent to Rs 332), have fared exceptionally well.

Riding high on the bull run, some small cap firms -- Aptech, Bayer, GVK Industries, India Infoline, and Everest Kanto -- have even grown into mid caps within the period. The market cap of Aptech was Rs 349 crore, when the Sensex was at 10,000 points, but it has reached Rs 1,374 crore in a span of 18 months.

"Investments in select small- and mid-caps will give you best returns, if you look at 2-3 years time frame. They also offer better valuations. There are opportunities in engineering and capital goods companies in this space," Mihir Vohra of ABN Amro said.

Manish Sonthalia, vice-president (equity strategy), Motilal Oswal, said, "The valuation difference was quite big for these companies, which is now getting corrected.

"The liquidity in Indian markets is still at lower levels compared with that of the US, so people are little wary of putting their money in these stocks. But this is an emerging space and will continue to rise."

Experts, however, want investors to be selective while investing in small caps as several counters do witness high speculative buying. "They need to do a thorough research on these stocks, before putting their money. It always happens that when the market takes a bearish turn, the prices of small- and mid-cap stocks fall sharply," said another analyst with a local brokerage.