The year 2019 is likely to end with the Sensex and the Nifty at record levels. The Sensex has run on the back of few heavyweight stocks including the likes of Reliance Industries, ICICI Bank, HDFC and HDFC Bank.
|BSE Midcap Index||-3.30%|
|BSE SmallCap Index||-7.88%|
The broader markets have gone nowhere in the last one year and in fact the midcap index and the smallcap index are likely to end the year in the negative. As such there is a price to pay for companies that are showing growth and quality is now coming at a significant premium, leave alone a premium.
Could 2020 see the revival of smallcap and midcap index?
Most analysts believe that the year 2020, could in all probability be the year of small and midcaps. What has happened in 2019 thus far has been that investors have moved away from small and midcap stocks, due to the economic slowdown. These companies performance tends to get hard hit, during a slowdown. This had led many investors to move to high quality names like Reliance Industries, HUL, HDFC, HDFC Bank and ICICI Bank. This is particularly true in the case of large investors, particularly the mutual funds.
In fact, mutual fund data shows that many funds now have Reliance Industries in their top 5 holdings, while this was not the case a few years ago. In any case, quality is now coming at a significant premium. Prices of these select shares have become very expensive and at some stage investors may just stop chasing these stocks.
Some of the midcap stocks, particularly from the pharma, metal and media space are looking exceedingly cheap. In fact, should there be an economic recovery we could see the stocks gain gradual momentum.
Among the sectors, one of the worst performing ones have been the media stocks. Shares of Zee Entertainment, Sun TV, Jagran Prakashan and DB Corp have all see large-scale price destruction. One of the worst performers during the time of slowdown are the media stocks, as advertisement spends tend to get hit first. Shares of DB Corp and TV Today Network are trading at near 52-week lows. Astute investors should see good opportunities in these stocks, as some of them are debt free companies or very negligible debt on the books.
One can also look at selectively buying into metal stocks or auto stocks, which have shown negative returns for 2019.
Investors will have to think very differently in the calendar year 2020, if they have to make money. Chasing good quality stocks from the midcap and small cap space could lead to investors working towards a better risk to reward ratio.
Some stocks from the oil and gas space like GAIL, ONGC and Oil India too look attractive for their dividend yields. Most of these stocks too are trading very close to their 52-week lows. Not only that some of these stocks are now trading at p/e multiples of just six times and much lower than their long-term averages. A classic example is ONGC.
In short, look for value beyond the few index stocks for long-term gains.