Mid and small-caps roar in market rally

Bavadharini KS | Updated on September 21, 2020 Published on September 21, 2020

Save a few, most stocks in the Nifty Mid-cap 100 and Nifty Small-cap 100 indices have gained since March

Despite the Covid-19 led challenges in the economy, the Indian stock market has rallied sharply since its March low this year. Buoyed by robust liquidity in the market, the Nifty 50 has gained 51 per cent between March and September, while the Nifty Mid-cap 100 and Nifty Small-cap 100 indices have outperformed the Nifty 50, rising about 58 and 78 per cent respectively. The recent announcement by the capital market regulator SEBI on new portfolio norms for mutual fund multi-cap schemes have also given a boost to the mid-cap and small-cap stocks in the past week.

Nearly 17 of 100 stocks in the Nifty Mid-cap 100 index, have more than doubled between their March lows and September this year. The winners are mainly from the pharmaceuticals, IT and telecom sectors. Of the remaining 83, 42 stocks, mostly in sectors such as finance and healthcare/pharmaceuticals, have delivered more than 50 per cent returns.

The Nifty Small-cap 100 index also saw a similar trend. Of the 100 stocks in the index, 28 stocks, predominantly from the IT, telecom and pharmaceuticals sectors have doubled between March and September this year; and 48 stocks (out of the remaining 72 stocks) have gained more than 50 per cent during the same period.

However, investors need to be cautious, as the valuation of some of the stocks in the mid-cap and small-cap indices is in expensive territory.

High returns

In the market rally since the March lows until now, 97 of the 100 stocks in the Nifty Mid-cap 100 index have clocked gains. Only three stocks, Aditya Birla Fashion, Rajesh Exports and Future Retail, have declined 16, 7 and 6 per cent respectively.

Of the top 10 mid-cap stocks that saw a sharp increase in prices in the last six months, three are from the pharmaceuticals industry - Jubilant Life, Glenmark Pharma and Syngene International. Of this, Jubilant Life gained the most, more than tripling from Rs 252 on March 23 to Rs 799 on September 18. Glenmark witnessed a rally of 171 per cent from Rs 188 to Rs 508. The rally was thanks to investors taking to pharma/ healthcare companies as a defensive bet amidst the pandemic.

Vodafone Idea gained 257 per cent, rallying from Rs 3.15 to Rs 11.25 – thanks to relief offered by the Supreme Court on AGR dues payment. Also, expectations that investors would pick stake in Vodafone Idea contributed to the surge in stock price.

In the Nifty Small-cap 100 index, 98 of the 100 stocks gained in the market rally between March and September. Only two stocks, Omaxe, a realty company, and Spandana Sphoorty, a finance company, declined 57 per cent and 5 per cent respectively, due mainly to a demand slowdown as a result of the Covid crisis.

The top 10 gainers in the Nifty Small-cap 100 index are from diverse sectors, including pharmaceuticals, IT, E-commerce, chemicals and electronics. The top three stocks are from sectors that have found favour due to the Covid induced lockdown - pharma and IT.

In this category, Laurus Labs rallied the most (366 per cent), up from Rs 320 on March 23 to Rs 1,493 on September 18. Granules India gained 212 per cent, from Rs 116 to Rs 365 during the period. First Source Solutions, an IT company, rallied from Rs 25 to Rs 74, nearly tripling.

While the returns are attractive, investors need to be more watchful now as stocks may be in expensive territory. They should also take note of the fundamentals of the companies. For instance, Vodafone Idea is still struggling with large debts and tight competitive market conditions, leading to subscriber erosion and has been reporting losses.

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Published on September 21, 2020
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