Mid and Small Cap Space Are Catching-Up And May Perform Well For 3-4 Years

While the category underperformed for last several years and then was bogged down by the Covid 19, there has been a remarkable resilience since July, to the extent that they have even outperformed headline indices. In 2020, after erasing all the Covid 19 led-losses while Nifty is up 9% for the year, Nifty Mid cap 100 and Small cap category have gone higher by 18 percent and 15 percent, respectively.

Mid and Small Cap Space Are Catching-Up And May Perform Well For 3-4 Years

And in fact, the rally has been more skewed rather than just being broad based. Those with low market-cap recorded the most surge i.e. stocks in a bucket of less than Rs. 1000 crore as per the data have rallied 33 percent year to date. In comparison stocks in the market cap of over Rs. 1 lakh crore have gained just 11 percent.

What triggered better return for these small and mid-cap stocks?

Other than better liquidity position which has been driving the overall stock markets as well as global stocks to new highs, other catalysts have been:

1. Inclusion into MSCI index:

Some of the stocks from the space have found their inclusion in MSCI index and hence huge foreign inflow boosted the sentiment in these stocks.

2. Better balance sheet situation:

During the recovery phase as the lockdown was easing, better balance sheet situation also helped in profit making in the recovery. And as the demand is likely to see further revival, these companies may benefit in the 12-18 month period.

3. Economic recovery will boost revenue growth:

And hence stocks from the category will also increase. Also, digital engagement as well as production-linked incentive together with Atmanirbhar bharat foray will also get a boost.

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