Small-cap stocks made big gains in fiscal 2021-22 as they gave up as much as 36.64 percent return, dwarfing the larger benchmark and experts believe they may continue to outperform in fiscal 23.
Markets faced many headwinds in the latter part of the last fiscal year with the rise of geopolitical tension, inflation concerns and FII sales.
Analysts said that the first half of the last fiscal year was very good, while the market went into consolidation in the second half, combined with high volatility.
The BSE small-cap index was up 7,566.32 points or 36.64% in fiscal 2021-22, and the mid-cap gauge was up 3,926.66 points or 19.45%.
By comparison, Sensex closed the 2021-22 fiscal year with a gain of 9,059.36 points or 18.29 percent.
“The market is scaling all the walls of concern and showing strong resistance that is characteristic of a strong bull market. We are in a structural bull market, however intermediate corrections will be part of this journey.”
“Mid-cap and small-cap stocks tend to outperform in a classic bull market, and I think they may continue to outperform in FY23 as well, as the Indian economy is poised for multi-year growth ahead.” despite short-term setbacks,” said Parth Nyati, founder of Tradingo. .
Nyati further added that historically, April remains one of the best months for the stock market, especially for small- and mid-caps, with the BSE small-cap index finishing in the green for 14 of the last 15 years with a gain. average 7 percent.
“So we can expect a great start to FY23 for the market as a whole,” Nyati said.
The small-cap index hit an all-time high of 31,304.44 on January 18 this year, after hitting its 52-week low of 20,282.07 on April 19, 2021.
The midcap indicator hit a record high of 27,246.34 on October 19 last year. It had reached its 52-week low of 19,423.05 on April 19, 2021.
The Sensex reached its all-time high of 62,245.43 on October 19, 2021.
Vinod Nair, Research Director at Geojit Financial Services, said: “The overall market correction over the past 5-6 months has made small and mid-caps a good investment proposition for FY2023. Small-caps trade cheaper than large- and mid-caps on a future earnings growth basis, however, volatility cannot be avoided in the short term as uncertainties about high inflation, slowdown of the economy and lower future profits.
According to Nair, small caps have this standard to outperform major indices during the glory period and when supported by liquidity.
“This time, coupled with the strong recovery in the domestic economy and strong inflows from retail and MF, they outperformed,” he said.
According to market analysts, local investors tend to buy small shares, while foreign investors focus on large or blue chip companies.
Nyati said relentless selling by FIIs in the second half pushed large-cap stocks back, while domestic money continued to support the small- and mid-cap basket.
The main reason for the outperformance of small and mid-cap stocks is the strong resilience of the Indian economy in tough times, and the continued faith of domestic money in our economy is another factor that helped the broader market keep up. head, he added.
“In our view, the post-pandemic opening theme provides a great growth avenue for a number of small and mid-cap stocks as they tend to grow faster,” said S Ranganathan, head of research at LKP Securities. .
In FY21, the small-cap BSE index had risen 11,040.41 points or 114.89%, while the mid-cap index jumped 9,611.38 points or 90.93%.
By comparison, the 30-share BSE benchmark index posted 20,040.66 points or a 68% gain during fiscal 2020-21.
(Only the headline and image in this report may have been modified by Business Standard staff; all other content is auto-generated from a syndicated source.)