Mid, small-caps underperform in H1FY20; metals, pharma, autos worst-hit

Mid-and small-cap indices have underperformed the frontline benchmarks – the S&P BSE Sensex and the Nifty 50 – in the first six months of the current financial year 2019 – 20 (H1FY20).

While the Sensex has lost a marginal 0.3 per cent since the beginning of this fiscal, Nifty has slipped 1.1 per cent during this period. S&P BSE Small-cap index, however, tanked nearly 11 per cent and the S&P BSE Midcap index has shed 8 per cent. The BSE500 index, which accounts 95 per cent of the total BSE listed companies market capitalisation, has lost 2.8 per cent in H1FY20.

Among stocks, shares of Anil Dhirubhai Ambani Group (ADAG), Indiabulls Group, Dewan Housing Finance Corporation (DHFL), YES Bank and Vodafone Idea have suffered the most – skidding over 50 per cent, making them the major wealth destroyers in H1FY20. On the other hand, HDFC Asset Management Company and HDFC Life Insurance were top gainers among the BSE500 stocks, rallying 84 per cent and 59 per cent, respectively.

Sectorally, metals (down 20 per cent), pharma (down 12 per cent) and auto (down 10.2 per cent) were the worst hit. However, consumer durables, capital goods and information technology sectors gained ground in H1FY20.

A slowdown in the economy, especially the auto industry, liquidity issues, stretched working capital cycles and wealth erosion effect that hurt promoters as well were some of the factors that dented the overall sentiment. However, the market reaction to these issues, analysts believe, has been overdone and the tide seems to be turning now. That said, they do not see the markets to be a one-way street the remaining half of FY20 and expect bouts of volatility in the backdrop of domestic and global factors.

“As the initial euphoria of the cut in corporation tax wears off, investors’ attention will shift back to economic issues. We expect tax-cut-led buoyancy to materialise but with a lag effect and in the meanwhile it will be critical how the government solves weaker GDP growth due to weak demand, which is the main issue. Our bull-case scenario for the Nifty50 would be 13,400 and bear case scenario would be 9,900 levels,” says Jigar Shah, chief executive officer at Maybank Kim Eng Securities.

At the global level, Sahil Kapoor, chief market strategist at Edelweiss believes a resurgence of quantitative easing and expected outperformance of Europe over the US would lead to weakness in the US dollar. This, he says, should spur the outperformance of emerging markets, including India and expects the Nifty to hit 13,000-13,500 by June 2020.

Even though global growth is slowing and geopolitical risks to oil prices are rising, analysts at BNP Paribas see more accommodative central bank monetary policies kicking in across the world. This, they believe, could continue to favour a near-term rally in India.

“The above said, several domestic headwinds still remain, which includes income uncertainty in both urban and rural markets (low wages/ inflation, unemployment), falling savings rates, and slow interest rate cut transmission,” cautions Abhiram Eleswarapu, India equity head for BNP Paribas.

Kapoor of Edelweiss finds automobiles & ancillaries, mid-cap financials, capital goods & infrastructure, pharma, consumption durables & apparels, and fast moving consumer durable (FMCG) sectors attractive on valuation basis.

Company	29-03-2019	LTP	% chg
LOSERS
Reliance Capital	204.2	24.75	-87.9
YES Bank	275.05	42.55	-84.5
Coffee Day Enter	289.05	48.05	-83.4
Rcom	4.14	0.79	-80.9
Reliance Power	11.36	2.23	-80.4
Reliance Infra.	136.7	29.4	-78.5
Eveready Inds.	192.65	45.2	-76.5
DHFL	150.5	39.6	-73.7
SREI Infra. Fin.	29.8	9.08	-69.5
Indiabulls Housing	857.2	277.2	-67.7
GAINERS
HDFC AMC	1534.2	2826.5	84.2
Adani Green	37.25	60.6	62.7
HDFC Life Insur.	378.5	601.75	59.0
SBI Life Insuran	579.55	842.8	45.4
Abbott India	7296.85	10609.75	45.4
Fine Organic	1236.6	1713.25	38.5
AAVAS Financiers	1160.8	1600	37.8
Tata Global	203.15	278.35	37.0
Galaxy Surfact.	1068.7	1460.9	36.7
Berger Paints	323.65	440.7	36.2

LTP - Last traded price on BSE in Rs at 11:50 am