Samvat 2079: Mid, Small-cap indices set to post 2nd best show in 9 years

As many as 497, or half of 1050 stocks, from the midcap and smallcap index have outperformed the all benchmark indices and appreciated over 35 per cent during Samvat 2079

The broader equity markets are set to post their second best performance in a Samvat 2079 in the past nine years, with the S&P BSE Midcap and S&P BSE Smallcap index surging 31 per cent and 34 per cent, respectively. 

Their best performance was in Samvat 2077, post Covid, when the midcap and small index had zoomed 62 per cent and 82 per cent, respectively. Earlier in Samvat 2070, these indices had rallied over 50 per cent each.

As many as 497 or half of 1050 stocks from the midcap and smallcap index have outperformed the all benchmark indices and appreciated by more than 35 per cent during the Samvat 2079. The stock price of 176 companies has seen more-than-doubled during the year.

Among sectors, realty (52 per cent) gained the most, followed by capital goods (50 per cent), auto (27 per cent), metal (24 per cent) and healthcare (23 per cent). However, information technology (IT), Financials, consumer goods and oil & gas sectors have underperformed the market by gaining less than 10 per cent.

Meanwhile, institutional investors, foreign portfolio investors (FPIs) pumped and mutual funds have collectively infused nearly Rs 2.84 trillion in Indian equities during Samvat 2079, data show.

On terra firma

Going into the Samvat 2080, most analysts remain bullish on the road ahead for the Indian equity markets despite multiple headwinds in the form of high interest rates, rising bond yields, volatile crude oil prices and the West Asia crisis. This, they believe, can keep the markets choppy.

“Despite global uncertainties, India remains a shining star and is expected to maintain its outperformance. Nifty is trading at a 12-month forward P/E of 17.6x, which is at a 13 per cent discount to its 10-year average, thus providing comfort,” wrote analysts at Motilal Oswal Financial Services in a recent note.

The brokerage firm believes that over the next couple of quarters, sector rotation could be an important driver along with the overall market uptrend. They also believe valuations will become an important factor in stock selection to drive outperformance in portfolios.

Key risks

One key risk, according to analysts at Morgan Stanley is a rise in crude oil prices in the backdrop of any geopolitical flare up. 

Within the Asian region, India is one of the more exposed economies to higher oil prices, with every $10 rise in oil prices imparting 50bps upside to inflation. The risk, they said, would arise if oil prices rise above $110 a barrel (Brent) in a sustained manner. 

“Under this scenario, while there would still be some fiscal subsidisation, the pass-through to domestic fuel prices will increase. As adjustments to retail fuel prices are taken up, there will be upward pressure on inflation,” wrote analysts at Morgan Stanley in a recent co-authored note led by Chetan Ahya, its chief Asia economist.

Another risk that could keep the markets choppy and the investors guessing, according to analysts, are the general elections back home, which are scheduled for April/May 2024.

Moves from the Opposition alliance that makes it seem that it is gaining momentum would raise market’s concerns over political and policy continuity of the current government. The markets, on their part, would look for continuity in the form of stable government and its policies post the general elections.

As regards the Indian markets, though Christopher Wood, global head of equity strategy at Jefferies believes that the Indian markets are the best domestic equity story in the world, midcaps, he cautions, are still expensive after the recent correction. India, he said, will be vulnerable to a Wall Street-correlated correction caused by higher bond yields. 

“The biggest risk for the Indian stock market is that the current government is not reelected with a meaningful working majority,” Wood said.