The ongoing Russia-Ukraine crisis has been quite disruptive for overall market sentiment, however, broader markets have been the most impacted. The Nifty Midcap and Smallcap indices have fallen around 7 percent and 11 percent in February as against a 3 percent decline in benchmark Nifty.
Only 4 stocks in each Nifty Midcap 100 and Nifty Smallcap 100 were in the green in the last 1 month, the remaining 96 gave negative returns to its investors.
"In February 2022, the mid-cap and small-cap index underperformed amid increased headwinds to equity markets from geopolitical conflict, sharp rise in oil prices and increased risk to inflation. Geo-political tension can keep the equity markets volatile in the near term. The focus should be towards long-term investment in quality large-cap and mid-cap stocks with strong earnings growth and valuation comfort," Kotak Securities said in a report.
On the Midcap index only JSW Energy, Trent, Cummins India and Varun Beverages were positive in the last 1 month, up around 14 percent, 5 percent, 4 percent and 2 percent, respectively. Meanwhile, stocks including Dalmia Bharat, Endurance Tech, Balkrishna Industries and Dr Lal Pathlabs fell over 20 percent each in this period.
Moreover, apart from these 4, 14 other stocks in the index fell in double digits in the last 1 month. Some of these include Torrent Power, Deepak Nitrite, Ajanta Pharma, Godrej Industries, MGL, Ramco Cements, ICICI Securities, etc.
On the smallcap index, Future lifestyle, Omaxe, Timken India and Gateway Distriparks were the only stocks in the green, rising between 2-12 percent in the last 1 month. On the other hand, 5 stocks - Repco Home Finance, Indo count, Himatsingka Seide, Navkar Corporation and JK Laxmi Cement lost over 20 percent each and 18 other stocks declined in double-digit in this period.
Most experts believe that this recent correction provides a great opportunity to accumulate some quality stocks of companies that are doing well and whose valuations are reasonable. While the damage in the broader markets is quite extensive, experts feel that investors should focus on stocks with good fundamentals.
While maintaining a bullish view on midcaps and smallcaps even as they lose momentum, ICICI Securities said, "Mid and small-cap valuation discount over large caps in terms of earnings yield relatively low currently at around 100 bps on a TTM basis. However, they have not yet reached the extreme optimism seen during 2017-18 where they traded at a premium to large caps."
Earnings growth of mid and small caps is expected to be much faster than largecaps over FY22-24, noted the brokerage. ICICI Securities expects Nifty Midcap100 to grow at a CAGR of 28 percent over FY22-24 and Nifty Small-cap 100 to grow at a CAGR of 33 percent during the same period. Meanwhile, Nifty50 is expected to see CAGR of 16 percent.
