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    Poll Year Rally: Will mid & smallcap stocks surge again?

    Synopsis

    Current performance divergence between Nifty & Mid/ Smallcaps is at historical extremes.

    GettyImages-180217506Getty Images
    The sell-off in 2018 resulted in mid- and small-cap stocks taking the biggest hits.
    MUMBAI: Investors with one-year perspective could put money in mid- and small-cap funds if returns in past election years are anything to go by. These funds have outperformed the broader Nifty in every year after the elections. If one takes a 12-month period after the last three general elections held in 2004, 2009, and 2014, the Nifty returned 39 per cent, 20 per cent and 19 per cent respectively. In comparison, the Nifty Midcap 100 returned 61 per cent, 68 per cent and 40 per cent, respectively, while the Nifty Small Cap 100 delivered returns of 99 per cent, 68 per cent and 38 per cent, respectively.

    Even in a shorter time frame of six months post the election results, these indices have outperformed the broader Nifty. While the Nifty returned 29 per cent in 2004, 9 per cent in 2009 and 10 per cent in 2014, the Nifty Midcap 100 earned 31 per cent, 42 per cent and 25 per cent, respectively, while the Nifty Small Cap 100 delivered 47 per cent, 41 per cent and 21 per cent, respectively.

    “Current performance divergence between Nifty & Midcap/ Smallcaps is at historical extremes. History suggests that such periods don’t last for too long and next 12 months is very different,” says Pankaj Tibrewal, fund manager at Kotak Mutual Fund. He advises investors to allocate money in these funds with a 3-5 year perspective.

    The sell-off in 2018 resulted in mid- and small-cap stocks taking the biggest hits. While the top 10 stocks by market capitalisation saw a median correction of 11 per cent from their 52-week highs, companies ranked between 10 and 100 (by market-cap) corrected 22 per cent. The sharpest correction was seen in companies ranked between 500 and 1,000 by market capitalisation at 42 per cent.

    “Small-cap and mid-cap stocks are best bought in tough times like now when valuations are reasonable and there is no euphoria. If we have a domestic cyclical recovery over the next couple of years, this segment of the market could do better, ”says Taher Badshah, chief investment officer, Invesco Mutual Fund. The one-year forward price-to-earnings ratio (PE) for the Nifty and the Nifty Midcap 100 are at 17 now.
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    Tibrewal said small-caps corrected by 50 per cent in 2011 and their weakness continued till 2013. “We saw a sharp rally from August 2013, with the index moving up 100 per cent in the next nine months to one year,” he said.




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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