Will dominance of small caps continue in FY23?

Even though the frontline indices – the S&P BSE Sensex and the Nifty 50 – are set to post a double-digit return for the second consecutive financial year in 2021-22 with a gain of 16 per cent and 18 per cent respectively, it is the small-caps where all the action was concentrated in the year gone by.

The small-cap index on the BSE has surged 35 per cent thus far in FY22 – far outpacing the gains in the S&P BSE Midcap and the BSE 500 indexes that moved up 18 per cent and 20 per cent, respectively during this period.
 
The small-cap rally was driven by improved earnings and strong inflows from domestic investors in local equities.
Domestic mutual funds have seen a record net inflow of Rs 1.73 trillion in FY22. FPIs, however, reported a record net outflow of Rs 1.42 trillion during this period, the National Securities Depository Limited data shows.

Despite the strong show, most analysts expect the markets to remain choppy in FY23 amid multiple headwinds.
The ongoing geopolitical crisis between Russia and Ukraine, they feel will keep commodity prices, especially crude oil elevated, which in turn will keep stock market gains in check.
 
Persistent inflation in the US and an increasingly hawkish US Federal Reserve are negative for global equity markets, said VK Vijayakumar, chief investment strategist at Geojit Financial Services. US dollar index at 99 levels and the 10-year bond yields at around 2.5 per cent, too, are areas of concern. Listen in to what he said.
 
On Thursday – the last day of expiry for future & options series for March series, the markets are likely to remain range-bound amid volatility. That apart, the financial year-end on March 31 will also weigh on investors’ minds as they book profit / loss on their investments for the fiscal year gone by.

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