CHARGING AHEAD

IN THE ONGOING FINANCIAL YEAR, SECOND-RUNG STOCKS HAVE SIGNIFICANTLY OUTPACED LARGE-CAP STOCKS. GOING FORWARD, INVESTORS WILL HAVE TO DIG DEEPER TO IDENTIFY THE NEXT WINNERS

- RIDDHIMA BHATNAGAR

MIDAND SMALL-CAP indices have bounced back from a 20%-rout since September-end till February, when several key companies experienced sizeable declines in share price and market value. In last few years, mid-and small-cap stocks had risen sharply, leading to valuations perceived as excessive compared to earnings growth.

Now, with valuations appearing more appealing next to large-caps, an earnings recovery, enhanced sentiment in both global and domestic markets, and steady inflows from foreign and domestic investors have sparked the rebound, says Vipul Bhowar, Senior Director and Head of Equities, Waterfield Advisors.

The divergence underscores a growing investor shift toward high-growth opportunities in the broader market, despite global headwinds.

If you look at mutual fund inflows into midand small-caps, there has been an uptick there too. Nifty midcap 150 gained 24% and Nifty small cap 250 gained 29%.

May alone saw inflows ₹3,214 crore in small-cap funds and ₹4,003 crore in mid-caps out of total equity inflows of ₹19,013 crore.

Lalit Kumar, Senior Fund Manager at ICICI Prudential Mutual Fund, says another reason for the mid-cap rally is that the mid-cap index has a higher allocation to domestic-facing sectors, which have benefited from the strong fundamentals of the Indian economy. Also, the large-cap index has greater exposure to oil & gas, fast-moving consumer goods, banking, and information technology sectors that have not performed very well recently. Mid-caps have a higher exposure to the manufacturing theme, which has been buoyed by government initiatives.