Outliers in the small and mid-cap space

In bull markets, stocks in the small and mid-capitalisation space tend to do better than their larger peers. In the Samvat just ended, the situation was no different. While the S&P BSE Sensex, which is the barometer for India’s largest listed blue chips, made investors richer by about 17 per cent, indices representing smaller listed companies did better.

Investors in small-caps would have added 10 percentage points more to their portfolio as compared to large-caps while those in mid-caps would have enjoyed a difference of 3 percentage points.

The divergence is much more if the time period is year-to-date with the small-caps giving double the returns of the large-caps at about 34 per cent. While most of the indices have hit their lifetime highs and valuations are at peak levels, analysts say further gains would depend on the revival of consistent earnings growth. However, analysts at Kotak Institutional Equities say that there would be continued investor interest in these stocks. 

This is because smaller  companies, given their revenue base, typically grow at a faster pace than their larger counterparts. Further, for investors looking to diversify and seek higher returns, these companies fit well into the investment portfolio. Given the higher risk and volatility in such stocks, which typically trade below market capitalisation of Rs  50,000 crore, investors have to tread with caution. As the new Samvat begins, here are some stocks from brokerage recommendations which are backed by fundamentals and have high growth potential. The adjoining table has 20 such stocks, which belong to diverse sectors such as auto components, pharma, banking and financial services, cement, hospitality and retail, and have the potential to generate returns of as much as 49 per cent and would act as a kicker to the portfolio of investors.

Current price to earnings (PE) is based on trailing 12 months financials ended June 2017 (or September 2017 where results have been declared); net sales, operating income and net profit data is in rupee crore; CMP is current market price as on October 18, 2017; Share price figures rounded-off; figures inside the arrows indicate potential upside for the next 12 months based on target price of brokerages; Source: Motilal Oswal Securities, HDFC Securities, Reliance Securities, Kotak Securities, Angel Broking, Centrum Broking, Axis Direct, ICICI Direct, Prabhudhas Lilladher, IDBI Capital, Aditya Birla Money, Anand Rathi and Asit C Mehta.

Data compiled by BS Research Bureau