After suffering a double-digit fall in 2018, the carnage in the mid- and small-cap stocks continued in the first half of 2019 with the BSE Midcap index down 4 percent and BSE Smallcap index losing 3 percent till date. In comparison, BSE Sensex gained 10 percent on a year-to-date basis.
Of the 105 stocks listed in the BSE Midcap index, 68 stocks gave negative returns in 2019, while 608 stocks in the BSE Smallcap index were in red during the period.
However, some mid- and small-cap stocks outperformed the benchmark and broader indices to become wealth creators for their investors. Over 150 stocks gained between 10-142 percent in the first half of 2019, of which, around 50 stocks rose over 30 percent.
These include Seamec, Aavas Financiers, Adani Gas, Ion Exchange, Info Edge, Manappuram Finance, Just Dial, Godrej Properties, Reliance Nippon Life AMC, and Oberoi Realty, among others.
"The midcap indices are down 18 percent from its peak 18 months ago and are now trading at a discount of 15 percent to the Nifty50. The correction followed the downward revisions to the earnings for FY19 (28 percent lower than estimated) on account of the very high expectations, the higher share PSU financials/stressed groups and cyclicals," JM Financial said in a report.
The report added that the combination of monetary easing and expected fiscally expansionary policies with a benign global backdrop (low rates, low oil prices) can start to drive a recovery over the next 12 months.
Of 105 stocks in the BSE Midcap index, only 3 gained over 30 percent in the first half of 2019. Godrej Properties advanced 50 percent, while, Reliance Nippon Life AMC added 38 percent and Oberoi Realty was up 33%.
Meanwhile, in the smallcap space, 45 stocks rose over 30 percent in the same time period. Seamec surged 142 percent, followed by Tanla Solutions (up 141 percent), Adhunik Industries (up 80 percent), Aavas Financiers (up 74 percent), Ion Exchange (up 69 percent), Adani Gas (up 65 percent), and DCM Shriram (up 64 percent).
Other gainers included Info Edge, SpiceJet, JK Cement, DCB Bank, Indiabulls Real Estate, SRF, Balrampur Chini, Deepak Nitrite and KNR Constructions.
Going forward, analysts said that individual stocks are beginning to offer reasonable risk-reward investors must look at 'value' stocks which are 'growing at a reasonable price'.
JM Financial suggests investing in Chalet Hotels, Infoedge, Muthoot Finance, Sanofi India, Timken India, Teamlease, V-Guard, Westlife, Bharat Forge, Cyient, Chola Financial Holdings, and Natco Pharma in the near term.
Among losers, 68 BSE Midcap stock fell in the first six months of 2019. Reliance Power tanked 84 percent, Reliance Infra was down 81 percent, Reliance Capital fell 70 percent, DHFL lost 68 percent, while Central Bank of India declined 45 percent. IDBI Bank, Glenmark Pharma, Varroc Engineering, Wockhardt, Emami, KIOCL, L&T Financial Holding, TVS Motor Company, and NALCO also lost between 23-42 percent.
Meanwhile, in the smallcap space, Reliance Communication, Mercator, McLeod Russel, Lloyd Electrical, Sintex Industries, Eros International, Cox and Kings, Siti Networks, Jet Airways, Punj Lloyd, Manpasand Beverages, HEG, Jaypee Infratech, and Jain Irrigation, among others, fell in the range of 58-91 percent.
According to Ashutosh Tiwari, Head of Research at Equirus Securities, valuations of some of the mid- and small-cap are at very reasonable levels and therefore it's looking more interesting for long term investors, however near term movement in these stocks will depend on liquidity scenario.
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