Midcaps, smallcaps outperform in first half of 2023; here are the biggest gainers and losers in the space

Despite multiple headwinds in the start of the year, the Indian markets have been pretty resilient in the first half of 2023 (H12023). The benchmarks along with broader market indices hit multiple highs in June. However, this rally has been mainly driven by the midcaps and smallcaps.

The mid-cap and small-cap indices have outperformed benchmarks in the first half of 2023 as well as in the month of June.

The Nifty Midcap and Nifty Smallcap indices advanced 13.5 percent and 11.4 percent in the first half of 2023. In comparison, the benchmark Nifty added 6 percent in this period.

Meanwhile, in the previous month June, the Nifty Midcap and Smallcap indices gained 5.9 percent and 6.6 percent, respectively as against a 3.5 percent rise in Nifty.

Before this in May and April as well, both broader market indices performed much better than benchmarks. In May, the mid-cap and small-cap index jumped 6 and 5 percent, respectively, while Nifty rose 2.6 percent. Similarly, in April, mid-cap and small-cap indices were up 5.8 and 7.5 percent, respectively, whereas Nifty added 4 percent.

Most experts noted that this rally has been driven by the mid and small-cap stocks more than the largecaps. After correcting earlier this year, the broader market stocks had favourable valuations which led to the rising investor interest. But now that valuations of mid and smallcaps have improved, investors can take a stock-specific approach to accumulate more stocks from this space, advise experts.

Outlook

Ajit Banerjee, CIO of Shriram Life Insurance Company

The year 2023 appears to be a base building for the next bull run which has started. The near-term movement is likely to be impacted by the policy rate movements in Western countries, currency movements and the quantum of FII flows. Indian corporate sector earnings have improved at a very strong rate of 15-20 percent which makes the valuations look attractive from a long-term perspective. Further, in view of the strong macro factors prevailing in India, even if there are certain global headwinds blowing, our market will be able to defend itself from a deep correction. Strong domestic flows are also acting as counter forces to prevent the market from any mega downslide. Therefore, superior earnings growth and continuity inflows are the main base of this rally. Till such time these two factors remain intact, we can expect a broader market rally in spite of valuations hovering in the long-term average levels on one-year forward price earning basis.

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 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. This is also a factor in encouraging Q4 numbers from the broader markets and the higher risk appetite on the part of HNI and MNI investors over the past few months.

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.

Anand Dalmia, Co-founder and CBO at Fisdom

An investor's personalised asset allocation strategy should ideally carry the appropriate response to this. However, for investors attempting to optimise for risk and reward in the context of the prevailing market cycle, a well-allocated portfolio primarily oriented in favor of largecaps would be preferred. Such allocation would help deliver a more efficient risk-reward payoff in the shorter term. Relative valuations in the small and mid-cap segments are turning favorable and investors with an appetite could start building allocation through a selective fund or stock selection practices.

Sunil Damania, Chief Investment Officer, MarketsMojo

In early 2023, we predicted that mid and smallcaps would outperform largecaps. Mid and smallcaps outperformed largecaps in the first five months. However, we anticipate that the mid and smallcaps will outperform in the second half of 2023. Hence, investors who can handle increased volatility should increase their allocation to mid and smallcaps.

Stocks

In the first half of 2023, only 12 stocks in the Nifty Midcap100 index were in the red, while the remaining 88 gave positive returns.

ABB India was the top midcap gainer, up 63 percent, followed by Polycab India, Zydus Life, and Ramco Cements, which were up over 30 percent each.

Meanwhile, Page Industries was the top loser, down 13 percent. IPCA Labs, and United Breweries shed over 10 percent each.

Meanwhile, in June, midcaps including ICICI Securities, Patanjali Foods, Max Financial, Zydus Life, Tata Comm, Prestige Estates, Dr Lal Pathlabs, and Godrej Properties rose between 10 and 20 percent.

However, Persistent Systems, Page Industries, Sun TV, GSPL, Polycab, Tata Elxsi, Clean Science and Tech and Navine Fluorine fell between 2 and 7 percent in June.

Meanwhile, in the smallcap space, Cyient, KEI Ind, KPIT Tech, Anupam Rasayan and Jindal Stainless surged between 40 and 87 percent in H12023 whereas Campus Activewear, Deepak Fertilisers, Jubilant Ingrevia, PVR-INOX, EID Parry, Bajaj Amines, Polyplex, and Fine Organic fell over 15 percent in H12023.

Just in June, smallcaps including Angel One, Jindal Stainless, Aether Ind, JB Chem, Metropolis Health, UTI Asset, Century Textiles, and KEI Ind gave double-digit returns between 10 and 28 percent. However, Anupam Rasayan, Borosil, and Mastek lost the most, between 5 and 12 percent.