Indian markets have faced strong volatility in 2023 year-to-date (YTD) on the back of major macro headwinds like inflation, rate hikes, and recession fears. Also, stock-specific news like fraud allegations on Adani Group also weakened investor sentiment and led to strong foreign investor outflows. However, post March, the markets witnessed a healthy recovery, hitting multiple new highs through June and July. But, August has again been a month of consolidation for the Indian markets.
Despite the unpredictability of the markets, 75 stocks from the small-cap space have delivered multibagger returns this year so far. However, the small-cap index has underperformed benchmarks this year, rising 3.5 percent versus a 6.7 percent jump in Sensex.
One must note that stocks that give over 100 percent returns are called multibaggers.
Among stocks, Jai Balaji Industries was the top performer, skyrocketing almost 400 percent just this year, followed by Zen Technologies, which soared around 350 percent.
Meanwhile, Jupiter Wagons, Titagarh Rail, Jindal Saw, Patel Engineering, Genus Power, and DDev Plastiks rallied between 200 and 275 percent each.
Apart from these, 67 stocks jumped over 100 percent. Some of these stocks include Aurionpro Solutions, JBM Auto, GE T&D India, Apar Industries, Kirloskar Brothers, Lloyds Engineering, Kaynes Tech, WPIL, Mrs Bector, Ramkrishna Forgings, Force Motors, Zensar Tech, Mazagon Dock, Suzlon Energy, Safari Industries, Shakti Pumps, Data Patterns, Venus Pipes, Atul Auto, KPI Green Energy, ION Exchange, Anad Rathi Wealth, Finolex Cables, and Cyient, among others.
But it is important to note that most experts advise staying away from small-cap stocks amid ongoing volatility. These stocks are highly risky and are not advised for risk-averse investors. One must contact their investment managers before investing in such stocks.
Outlook Ahead
While experts see volatility in the near term, they believe quality small-cap stocks are ripe for investing but on a selective basis. However, one must properly research and look through the fundamentals of the stock before buying.
Anil Rego, Founder and CEO of Right Horizons
The SMID segment was discarded last year as domestic investors flocked towards largecaps and foreign investors to high-yielding US assets, making it undervalued relative to largecaps available at discounts. We are optimistic about the small-cap and mid-cap segment and expect it to outperform over the next three to four years.
Valuation seems reasonably balanced at this point in time, especially on the small-cap side where good businesses were depressed last year due to liquidity outflow and tightening market conditions. Look out for growth companies that can stand to make the most when interest rates will come down as most of the valuation of such companies comes from the terminal value which rerates at a faster pace during a declining interest rates environment.
Deepak Jasani, Head of Retail Research, HDFC Securities
After underperforming in FY23 vis-a-vis Nifty, mid, and small-cap indices and stocks are now playing catch-up. Temporarily, the focus may keep shifting between largecaps on the one hand (coming back in favour in uncertain times) and mid and smallcaps on the other. The allocation between these needs to be made based on the risk appetite and return expectations of investors.
