Small, mid-cap indices beat Sensex by huge margin

The shares of small- and mid-cap companies outperformed the bluechips in financial year 2009-10. This was due to the revival of investor sentiment and expectations of higher returns.

For the year ended March 31, the 30-share benchmark Sensex gained 80.5 per cent, or 7,819.27 points. This was, however, dwarfed by the gains posted by indices representing the broader markets.

The BSE Midcap index, which comprises 248 stocks, gained 130.2 per cent, or 3,850 points, in 2009-10. The BSE Smallcap index, a basket of 482 stocks, surged 162 per cent, or 5,251 points.

Market participants, especially those dealing with a large number of retail clients, said small investors hoping to make swift returns actively looked at these counters. Shares of mid- and small-cap companies were beaten more when the market was down, leading to investors betting on them during the rally.

Mayank Shah, CEO, Anagram Capital, attributes this to investments by retail entities, high net worth individuals and specific schemes of mutual fund houses. With confidence rising, appetite for such stocks rose. “Besides, there is enough empirical evidence that when the markets bounce back, mid-caps give better returns,” said Shah.
 

RECORD RETURNS
Index	‘07-’08	‘08-’09	‘09-’10
Sensex	19.68	-37.94	80.54
Nifty	23.89	-36.19	73.76
BSE 100	24.98	-39.97	88.17
BSE 200	24.13	-40.98	92.87
BSE 500	24.25	-42.77	96.38
BSE Midcap	19.38	-54.01	130.23
BSE Smallcap	21.19	-58.6	161.73
Source: BSE, NSE                         *Returns in per cent

Incidentally, this is the first time that the BSE Midcap index and the BSE Smallcap index have outpaced the 30-share Sensex by such a huge margin. It is also the first time that these indices have gained more than 100 per cent each in one financial year. In 2007-08, they had risen around 20 per cent. The benchmark Sensex had gained a little less than 20 per cent. For the Sensex, financial year 2010 was the best since 2003-04, when it had gained 83.4 per cent.

“Fresh buying was clearly visible in fundamentally strong stocks,” said Ajay Pandey, assistant vice-president (institutional sales), Intime Spectrum Securities. “It is not only mid-cap and small-cap indices that have outpaced the benchmarks. The Nifty junior was also higher than the Nifty,” he adds

Foreign institutional investors (FIIs) played a prime role in the gains posted by the indices in the year ended March 31. According to the Securities and Exchange Board of India, FIIs invested more than $20 billion (Rs 90,000 crore) in financial year 2009-10. Market participants, however, said the bulk of this money went into the index constituents.

“Typically, FIIs and large domestic financial entities do not get into a stock that has a market capitalisation of, say, less than Rs 500 crore,” said Shah.