Mid- and small-cap stocks shine

956 stocks hit upper circuit.

Kolkata, May 20

A third of the total traded stocks on the BSE on Wednesday hit upper circuits. Of the 2,795 stocks traded, 956 hit the ceiling suggesting a broader breadth and upward movement in the mid- and small-cap stocks.

As many as 14 components of the 30-stock Sensex were in the loser’s list. The buoyant trend in lower capitalised stocks was also evident as only 70 stocks touched lower circuits.

According to analysts and investment advisors, this surge in prices and traded volumes of mid- and small-cap stocks is largely fuelled by overseas investors and supported by domestic investors.

Mr Saurabh Mukherjea, Head of Equities at Noble group, told Business Line that post election results, 80 per cent of advisory firms’ overseas clients have turned to mid-cap stocks. “The number of our clients investing in the mid-cap stocks has doubled in one week.”

He also said that now the focus of investors in the mid-cap space has also broadened compared to a few weeks ago. “It is not restricted to a few sectors, rather across the board.”

Mr Mukherjea felt that mid-cap stocks may outperform the large-cap stocks in view of the surge in interest and liquidity. He pointed out that the Global Emerging Market funds have been showing marked shift in focus towards Indian mid-caps from large caps.

“Foreign investors particularly are taking a fresh look at this space for relatively lower valuation and growth prospects. The returns are expected to be better.”

Mid- and small-cap represent around 40 per cent of the total market capitalisation. A disproportionate share of the current inflow is directed towards this space, market insiders say.

Lack of relative depth is not deterring the overseas funds now. Mr Arindam Ghosh, CEO of Mirae Asset Management, said that with upward earnings revision in view, the frontline stocks within the mid-cap pack are seeing long-term investments. “Today’s participation and advance-decline ratio indicated entry of foreign investors, while profits were booked in large cap stocks. This trend would continue,” Mr Ghosh expected.

Relative out-performance of India equities is now giving way to a broader rally. The last five days of trading suggests a rotation and increase in inflow.

India Head of Dalton Capital Mr U R Bhatt felt: “Mid-cap stock valuations compelled the long-term investors to ignore the liquidity risk.”