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Dalal Street minnows steal the show in FY24; give high returns to investors

BSE mid- and small-cap stocks outperformed the benchmark Sensex in 2023-24 with returns of around 62%, reflecting investor momentum amid robust macroeconomic backdrop in the country and impressive quarterly profits published by various companies. According to an analysis, the BSE mid-cap index surged by 15,013.95 points or 62.38 per cent during the financial year 2023-24, while the small-cap index soared by 16 068.99 points or 59.60 percent. In comparison, the 30-stock BSE Sensex registered a gain of 14,659.83 points, or 24.85 per cent, during the financial year under review.

“The recent surge in interest in mid- and small-cap stocks among retail investors can be attributed to their remarkable earnings growth and search for high growth opportunities. Highlighting this trend, investors have shown a clear preference for mid- and small-cap stocks. compared to large capitalizations, as evidenced by the net inflows on equity UCITS.

“This shift in investor sentiment is reinforced by robust macroeconomic conditions in India, which traditionally favor accelerated growth in mid- and small-cap stocks during periods of economic expansion. validate their substantial growth potential, attracting retail investors looking for profitable businesses,” said Suman Bannerjee, CIO of hedge fund Hedonova.

The entire market performed impressively in the financial year 2023-24. The BSE Midcap Index hit its all-time high of 40,282.49 on February 8 after falling to its 52-week low of 23,881.79 on March 31, 2023. The Small Cap Index of BSE surged to its all-time high of 46,821.39 on February 7 after hitting its 52-week low of 26,692.09 on March 31 last year.

The 30-stock BSE Sensex touched its all-time high of 74,245.17 on March 7 this year.

“The outperformance of mid and small cap stocks against the Sensex in the current financial year reflects the dynamic nature of the Indian stock market and the diverse opportunities it offers to investors,” Sunil Nyati, Managing Director, Swastika Investmart Ltd. , said. The BSE small-cap index suffered a correction in March, falling 4.55 per cent. The mid-cap index fell slightly this month. The correction seen in mid- and small-cap stocks in March is consistent with the assessment of increased exuberance prevailing in the market, Bannerjee said.

“This correction reflects the impact of regulatory control on investment flows in the micro, small and mid-cap segments. Recent market turmoil, exacerbated by regulatory measures aimed at curbing speculation, highlights the need for a prudent and insightful approach to investing.” he added.

The mid-cap index tracks companies whose market value is, on average, one-fifth that of blue chips, while small-cap companies make up almost one-tenth of that universe.

The meteoric rise in mid- and small-cap stocks in the current financial year saw a slowdown in March, Nyati said.

“After significantly outperforming their larger counterparts, these segments have seen a correction amid concerns about high valuations and broader market nervousness,” he noted.

According to market analysts, small stocks are usually bought by local investors, while foreign investors focus on blue chip stocks or large companies.

On the road ahead for mid and small cap stocks in the next financial year, Nyati said, “FY25 promises an exciting and challenging journey for mid and small caps. “The election could usher in stability, fostering a business-friendly environment. This, coupled with India’s projected strong GDP growth, creates fertile ground for these domestically focused companies.”

He further added that navigating this terrain requires caution.

“Rising interest rates, global headwinds and possible profit-taking could lead to short-term volatility,” Nyati said.

During the financial year 2022-23, the BSE Sensex climbed by 423.01 points, or 0.72 per cent.

However, the BSE small-cap index fell by 1,258.64 points or 4.46 percent and the mid-cap index marginally declined by 42.38 points or 0.17 percent in 2022- 2023.

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