Small-caps give large returns. Be selective now, say analysts

Hester Biosciences, JBM Auto, Oriental Carbon and Caplin Point Laboratories have rallied up 20%

The BSE Smallcap index was up nearly 1% for the second consecutive day, hitting a new high on Thursday on the back of a sharp rally in pharmaceuticals, chemicals, auto ancillary, public sector banks and real estate stocks.

The index hit a record high of 15,851 in intra-day trade on Thursday, surpassing its previous high of 15,811 touched on June 22, 2017. Thus far in the calendar year 2017, the BSE Small-cap index has outperformed by gaining 32%, as compared to 25% rise in the S&P BSE Midcap and 18% rise in the benchmark S&P BSE Sensex.

The S&P BSE Sensex that hit an intra-day high of 31,359, is 164 points away from its record high of 31,523 touched on June 22. While, midcap index touched high of 15,005 in intra-day trade, is 118 points away from its all-time high 15,123 hit on May 17.

The outperformance, analysts say, has been on account of the gush of liquidity into the markets since the start of the calendar year 2017 (CY17). Thus far in CY17, FIIs and MFs collectively have invested Rs 95,948 crore into the Indian markets, which is three-times higher as compared to Rs 29,518 crore the same period last year, the National Securities Depository Limited (NSDL) data show.

“There is ample liquidity in the market and investors are chasing stocks where they see visibility in earnings and growth potential,” explains A K Prabhakar, head of research at IDBI Capital.

Among individual stocks, Hester Biosciences, JBM Auto, Oriental Carbon & Chemicals and Caplin Point Laboratories rallied up to 20%, while Prestige Estates, Sobha, Unitech, Gayatri Projects, Indian Overseas Bank, Syndicate Bank and Manappuram Finance gained 3% to 5% on BSE in intra-day trade on Thursday.

Given the run up in CY17, analysts now remain cautious on this space and suggest investors put in fresh money only on a sharp correction.

“It is not possible to paint the entire small-cap segment with the same brush. Investing in small-caps is a bottoms-up and a stock-specific approach. More or less, many stocks in this segment have rallied sharply in CY17 and have become overvalued. One needs to be cautious now regarding the valuation,” says Daljeet Kohli, Head of Research, IndiaNivesh Securities.

Venkys India, Timken India, Transport Corporation of India, Raymond, Gruh Finance, Balkrishna Industries and Lakshmi Vilas Bank are among 21 stocks from the S&P BSE Smallcap index hit their respective record highs in intra-day trade on Thursday.

Most of the real estate stocks also gained ground after Sobha that rallied 6% to Rs 407 levels in intra-day deals, reported a 12.7% and 11.9% quarter-on-quarter (q-o-q) jump in its sales volume and total sales value, respectively in Q1FY18.

“The small-caps are getting into a vulnerable zone now. The run up has happened more on account of PE (price to earnings) rerating rather than EPS (earnings per share) growth, which is a cause for concern. The first round of earnings upgrades will likely be in the large-caps only. That apart, valuation of a number of small-caps now appears stretched. Going ahead, I think money will find its way into known large-cap stories. Having said that, these stocks can be bought on a sharp correction, but one needs to be stock specific,” cautions Prakash Diwan, director, Altamount Capital Management.

 

COMPANY	LATEST	PREV CLOSE	GAIN(%)
HESTER BIOS	1147.10	955.95	20.0
ORIENTAL CARBON	1170.00	1034.45	13.1
JBM AUTO	320.75	286.10	12.1
NITCO	77.15	69.50	11.0
CAPLIN POINT LAB	710.05	646.70	9.8
I G PETROCHEMS	469.05	435.00	7.8
IOL CHEMICALS	64.85	60.15	7.8
VADILAL INDS.	870.40	807.40	7.8
ZEN TECHNOLOGIES	54.00	50.15	7.7
FUTURE CONSUMER	34.15	31.95	6.9
REDINGTON INDIA	135.65	127.00	6.8
PANASONIC CARBON	545.50	512.30	6.5
PRESTIGE ESTATES	265.00	249.80	6.1
SARLA PERFORMANC	52.80	50.00	5.6
OM METALS INFRAP	55.60	52.65	5.6
CAMLIN FINE	90.70	85.90	5.6
KOKUYO CAMLIN	109.70	103.95	5.5
DEEPAK NITRITE	181.30	171.90	5.5
JAYPEE INFRATEC.	19.55	18.55	5.4
MAH. SEAMLESS	425.00	404.65	5.0

COMPANY	LATEST	ALL TIME HIGH	PREV HIGH	PREV DATE
ASIAN GRANITO	466.8	470.0	460.0	03-Jul-17
BALKRISHNA INDS	1723.5	1750.0	1733.0	29-Jun-17
BHANSALI ENGG.	71.0	71.9	70.9	04-Jul-17
CAPLIN POINT LAB	712.4	718.0	681.7	05-Jul-17
CHAMBAL FERT.	139.5	140.8	139.7	05-Jul-17
GRUH FINANCE	458.0	463.1	462.0	05-Jul-17
HESTER BIOS	1147.1	1147.1	965.0	06-Apr-17
I G PETROCHEMS	468.0	476.9	440.0	04-May-17
JBM AUTO	319.6	327.4	326.9	01-Nov-16
LAK. VILAS BANK	208.8	209.8	208.8	05-Jul-17
MAHINDRA HOLIDAY	630.5	633.5	630.0	05-Jul-17
MEGHMANI ORGAN.	53.2	54.2	53.4	04-Jul-17
MEP INFRAST.	126.4	131.3	127.4	05-Jul-17
ORIENTAL CARBON	1194.8	1196.9	1067.4	03-Apr-17
RAIN INDUSTRIES	122.4	123.4	122.9	05-May-17
RAYMOND	835.0	839.8	818.5	05-Jul-17
SONA KOYO STEER.	107.4	109.9	108.8	05-Jul-17
TEAM LEASE SERV.	1446.1	1457.0	1440.7	05-Jul-17
THIRUMALAI CHEM.	1046.8	1073.9	1021.7	05-Jul-17
TIMKEN INDIA	788.1	815.4	795.0	05-Jul-17
TRANSPORT CORP.	343.8	349.7	344.5	04-Jul-17
VENKY'S (INDIA)	2358.0	2480.0	2293.8	05-Jul-17