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A piece of good news for midcap, smallcap investors; but caveat applies

Post 2013, midcap and smallcap indices rallied 54.7% and 69.2%, respectively,

Updated: Jan 11, 2019, 03.00 PM IST
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Till Wednesday, the midcap and smallcap indices were down 2 per cent for this calendar against a marginal rise in Sensex. They fell up to 23 per cent last year.

NEW DELHI: Midcap and smallcap stocks may have burnt investor wealth in 2018, but if one were to go by history, these stocks might just mint plenty of money for investors in 2019.

Data compiled from past 13 years since 2006 (BSE Midcap and Smallcap indices were launched in April 2005) shows midcap and smallcap indices make a comeback after a year of poor returns and outperform their largecap peer by a mile in the comeback year.

It last happened in 2014. After 2013’s poor show, midcap and smallcap indices rallied 54.7 per cent and 69.2 per cent, respectively, in 2014 against a 29.9 per cent surge in the BSE Sensex. In 2013, BSE Midcap and Smallcap indices had dropped 5.7 per cent and 11.2 per cent, respectively, against a 9 per cent rise in the BSE Sensex.

In 2012, these two indices delivered up to 38 per cent return against a 26 per cent rise in the Sensex after the midcap benchmark had dropped 34.2 per cent and the smallcap gauge slipped 42.6 per cent in 2011.

In last 13 years, 2010 and 2011 were the only two years, when midcap and smallcap indices underperformed Sensex for two consecutive years.

Calendar 2009 emerged the best year for these second-rung stocks. BSE Smallcap index delivered a staggering 127 per cent return, while the midcap index also doubled investor wealth (108 per cent) against a 81 per cent jump in Sensex. That followed after a depressing 2008, the year of global slowdown, when the two indices had lost two-thirds of their market capitalisations.

Analysts, meanwhile, are a bit cautious.

“Calendar 2013 gave us a crying buy call because midcaps were available at 4 PE. It was very easy to launch funds every month to collect midcap money. That is what we did in 2013. It was different. Today, even after the correction, they are still not that cheap. I am not as worried as I was one year ago, but they are not in the cheap zone,” Nimesh Shah, MD & CEO at ICICI Prudential AMC, told ETNOW.

Till Wednesday, the midcap and smallcap indices were down 2 per cent for this calendar against a marginal rise in Sensex. They fell up to 23 per cent last year.

Sanjay Sinha, Founder at Citrus Advisors, believes most of the pain in the midcap and smallcap pockets are in the price. But he advises investors to keep a balanced portfolio.

“Is calendar 2019 turns out to be a volatile year, it is going to give you opportunities. The right balance would be to have 50-60 per cent in largecaps and the balanced 40 per cent in the midcaps and smallcaps,” he said.
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