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Small And Midcap Stocks Could Deliver Abnormal Gains

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Midcap and small cap stocks have lost a great deal of momentum in the last 1 year. In fact, some stocks have plunged as much as 40 to 50 per cent in the last 1 year.

Small And Midcap Stocks Could Deliver Abnormal Gains
 

The Nifty 100 midcap index, which at one stage was trading at a p/e of 25 times, is down to just 15 times. In the last one month itself, the index is lower by a whopping 10 per cent. This offers good opportunity for those looking to invest.

In fact, stocks from the broader market have seen significant falls and most of the stocks are very close to their 52-week lows.

Reasons for the fall?

The Indian markets are getting increasingly risk averse ahead of the General Elections. When this happens, the stocks to fall are the small and midcap stocks. Investors as such then begin to buy into the highly liquid large cap names and shun the small and midcap stocks. However, when the tide turns, small and midcap stocks are capable of giving abnormally high returns.

Some of the well managed companies from the midcap space could be attractive buys at these levels, including those from the banking space. Stocks that are very close to their 52-week lows could be the preferred bets, as these have the potential to make money.

Stocks like Avanti Feeds, Amararaja Batteries, Federal Bank and Graphite could be good contrarian bets. These are well managed companies, though some like Avanti Feeds are facing pricing pressures and a general slowdown, which could be temporary.

Risks from general elections

Most of these stocks have fallen significantly from higher levels and hence there maybe limited downside risk. The general election risks always remain a risk, especially if the results are not in line with market expectations. However, the risk is likely to be behind us at some stage and it could be business as usual for the markets.

Read more about: stock market nifty sensex
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