 "Small, MidCap indices outperform Sensex for 5th straight month in FY25")
The BSE SmallCap and BSE MidCap indices are set to outperform the frontline benchmark, BSE Sensex, for a fifth straight month in the current financial year 2024-25 (FY25).
In the first five months (April to August) of FY25, the SmallCap index has surged 29.7 per cent (38 per cent in FY24), while the MidCap index has rallied 24.5 per cent (30 per cent in FY24) as compared to 11.1 per cent rise in the benchmark index during this period.
The BSE SmallCap (56,416.31) and MidCap (49,099.45) indices hit a fresh record high on the BSE in Wednesday's intraday trade.
Nearly 430 stocks, or 43 per cent, out of the 995 scrips that comprise the smallcap index have outperformed by rising over 30 per cent during this period, data shows. A total of 49 smallcap stocks have doubled in value, i.e. given a return of 100 per cent or more.
Of these, four stocks – Balu Forge Industries, Shakti Pumps (India), GMR Power, and Urban Infra and PG Electroplast – have zoomed between 200 per cent and 280 per cent thus far in FY25.
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Among the midcap stocks, Emami has surged 95 per cent, while Oil India, Glenmark Pharmaceuticals, Crompton Greaves Consumer Electricals, Trent, and Whirlpool of India have rallied 70 per cent to 85 per cent.
Strong liquidity
The market rally in the past few months, including the mid-and small-cap segments, analysts believe, has been on the back of strong inflow from the domestic institutional investors (DIIs). According to data available, the DIIs have made net investments of Rs 2 trillion thus far in FY25. On the other hand, foreign portfolio investors (FPIs) have sold nearly Rs 1 trillion.
That said, the current Sensex and Nifty levels, analysts suggest, are nothing much to worry about as the index (Sensex) trades at less than 24x on a trailing price-to-earnings (PE) basis. However, several pockets of the SMC segments, cautioned G Chokkalingam, founder and head of research at Equinomics Research, are a matter of concern.
"Some of the new-age stocks continue to rally even up to 4-digit PE, and we are concerned about them. For investors with average risk profile, investing up to 50 per cent of equity assets into large cap (especially Sensex / NIFTY) stocks is advisable, 5 per cent to gold / cash and the balance to quality SMC stocks. Investors should choose midcap and smallcap stocks in such a way that if there is any significant fall, they would be able to withstand it,” he said.
Weak commodities, a possible US rate cut in September, and a mass consumption recovery, according to analysts at Emkay Global are significant tailwinds for the markets, but slowing consumption at the premium-end remains a worry. Though the Nifty PE has moderated after the recent correction, pockets of overvaluation persist.
"We think the market is fairly valued and a near-term upside would come only if the earnings revision momentum returns. From a one-year plus perspective, we are constructive because of continued double-digit earnings growth, wrote Seshadri Sen, Arthkumar Gandhi and Meenal Bhagwat of Emkay in a recent note.
With underlying positive macros, stable commodity prices and resilient corporate earnings, analysts at ICICI Securities retain their positive stance on the markets. Any dips, they suggest, should be used to build a long-term portfolio of quality stocks. The brokerage firm value Nifty at 27,500 i.e. 22x PE on FY26E, offering a healthy 10 per cent potential upside in the short-to-medium term
"This is our 12 months rolling target. We are upgrading our PE valuation multiples to 22x versus 20x earlier amid greater macro-economic stability, firm political mandate, thrust on policy continuity and further attractiveness of equity as an investment class versus peers. Interest rates cut will be further positive,” said Pankaj Pandey, head of research at ICICI Securities. The brokerage firm’s 12-month Sensex target is 91,600.