Mid, small-caps outrun Sensex in H1FY18

Indiabulls Real Estate, HEG, Graphite India, Avanti Feeds, Adani Transmission, Future Consumer and Tinplate Company among 18 stocks rallied more than 100% in H1FY18.

Shares of mid-and-small cap companies have fared better as compared to their large-cap peers in first half (April to September) of the current financial year 2017-18 (FY18). The S&P BSE Small-cap index rallied 12%, while S&P BSE Midcap index surged 10% as compared to 6% rise in the benchmark S&P BSE Sensex.

Around 18 stocks from the S&P BSE Smallcap index appreciated over 100% in past six months, while 69 rallied between 50% – 99%. The list includes Indiabulls Real Estate, Indiabulls Ventures, HEG, Graphite India, Avanti Feeds, Adani Transmission, Future Consumer and Tinplate Company. Only three stocks – Future Retail, Avenue Supermarts (D-Mart) and Bajaj Finance – from the large-cap rallied more than 50% during the said period.

Strong inflow by the domestic mutual funds (MFs) and improved financial performance led to the rally in these stocks, analysts say. MFs have pumped in net amount of Rs 70,460 crore in equities in H1FY18, which is five-times higher as compared to the same period last year. 

“Mid-and small-caps have benefitted from the gush of liquidity flowing in to the markets – both from domestic and foreign players. That apart, there was an expectation that there will be a formalisation of economy post demonetisation and goods and services tax (GST) bill implementation, which in turn will augur well for these two segments,” explains Vinay Khattar, associate director and head of research at Edelweiss.

Outlook

Going ahead, analysts say, geopolitical events (US and North Korea), global central bank policies, oil prices, impact of goods and services tax (GST) on corporate earnings, rupee performance and measures to rev up the economic growth are some of the factors that will dictate market trend.

Gautam Chhaochharia, head of India research at UBS Securities in a co-authored report with Sanjena Dadawala says the risk-reward for the Indian markets remains unattractive and that the markets are pricing in too much (economic) growth too soon. Their base-case for the Nifty50 index by December 2017-end is 9,000 (down nearly 8% from current levels), while the upside scenario is 10,000.

Illustration: Ajay Mohanty

“The market is again pricing in too much growth too soon in hopes of an H2 demand recovery. Consumers may be in the same boat as markets: sentiment is improving, but the actual underlying trends are not. In our view, the risk-reward for Indian markets remains unattractive,” they say.

On the domestic front, the government has been under pressure to revive the economy following surprisingly weak gross domestic product (GDP) growth of 5.7% year-on-year in the June quarter, which was below 6.1% recorded in the previous quarter and 7.9% registered in the same period last year. 

In September, the rupee hit its lowest level in five months, slipping below the 65 mark to the US dollar amidst concerns that fiscal deficit will widen after the government said it was considering measures to boost growth. The key thing to watch, going ahead, is the quality of government spending or expenditure mix (investment vs. consumption), analysts say. 

“If the spending is geared towards boosting investment or enhancing competitiveness then it will likely have more durable long-term positive impact and help mitigate concerns about India’s long term fiscal sustainability,” says a note from HSBC.

Consumer discretionary, financials, industrials and materials are the key overweight sectors for HSBC, while information technology (IT), consumer staples, telecom, healthcare and energy are among its key underweights.
 

Company	31/03/2017	LTP	% chg
Indiabulls Ventures	58.20	245.85	322.4
HEG	222.85	936.10	320.1
Graphite India	112.20	373.60	233.0
Himadri Specialt	43.65	143.00	227.6
Tinplate Co.	77.70	234.55	201.9
Avanti Feeds	741.20	2040.00	175.2
Indiabulls Real Estate	87.40	221.10	153.0
Phillips Carbon	330.00	810.30	145.5
Bhansali Engg.	34.80	83.05	138.6
Adani Transmission	64.35	151.15	134.9
Visaka Inds.	270.35	596.00	120.5
Meghmani Organ.	37.30	80.50	115.8
Bombay Dyeing	83.00	176.85	113.1
Geojit Financial	59.40	123.30	107.6
B.L.Kashyap	21.25	43.95	106.8
ITI	71.05	145.00	104.1
Future Consumer	29.15	60.40	107.2
JBM Auto	278.10	561.80	102.0
LTP : Last traded price on BSE in Rs at 12:29 PM