Nearly 20 smallcap stocks more than double wealth in Q2, Nifty up over 10%

The Indian market was on a roll in the September quarter as benchmark indices recorded gains of about 10 percent each, but there was plenty of action in the small & midcap space.

Nifty50 recorded gains of over 10 percent while the S&P BSE Sensex rose a little over 9 percent in the September quarter. BSE Mid-cap index rose over 12 percent, and the S&P BSE Small-cap index closed with gains of over 20 percent in the same period.

The broader market outperformed benchmark indices in the September quarter and as many as 18 stocks in the S&P BSE Smallcap index rose more than 100 percent. These include Globus Spirits, Ramco Systems and Tanla Solutions.

In the S&P BSE 500 index, 6 stocks rose more than 100% - Laurus Labs, Birlsoft, IndiaMart InterMesh, Persistent Systems, Adani Green and FirstSource Solutions.

The S&P BSE 500 index contains stocks from both mid & smallcap themes as well as largecap space.

Note: The table is for reference and not buy or sell recommendation:

Experts are of the view that the rise in liquidity, as well as sheer underperformance of the last 2 years, is leading to a rally in the broader market space. However, investors should still be careful while picking stocks in the small & midcap space.

“Liquidity indeed is a cause of volume in this segment however it seems that investors feel this segment to be relatively undervalued and are expecting good returns with the recovering and rising Nifty,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited told Moneycontrol.

“Unlock 5 is expected to further normalize the business as this was the segment hard hit during the lockdown and following few months,” he said.

What should investors do?

D-Street got support from foreign institutional investors (FIIs) in the September quarter as they were net buyers in the cash segment of the Indian equity markets for nearly Rs 7000 crores.

Expectations of normalcy in the economy, positive global cues, expectations of stimulus, as well as value buying seen in value stocks pushed up prices.

Experts advise investors to remain cautious of the companies which have rallied more than 100% in the September quarter, as the momentum may not sustain for long.

“Technically, as of now, the rally in these stocks looks impulsive and secular in nature, however, given the size and fundamentals of these companies, if the reason behind the rally in these stocks changes the momentum may slow down,” Umesh Mehta, Head of Research, Samco Group told Moneycontrol.

“Also, stocks cannot always keep rising there will be a time when mean reversion will bring about a correction in these rallied stocks. Momentum itself as we all know is cyclical in nature, so it is advisable that traders keep booking profits timely and maintain trailing stop loss so that they aren’t stuck in the wrong side of the trade,” he said.

Over the last six months, most of the stocks have rallied stupendously. Going forward, the focus will be on their earnings growth. As most of the positives have already been priced in, and any disappointment could trigger profit-taking, say experts.

“Any disappointment in earnings could cause the stock prices to come under pressure. Hence, those who are holdings these stocks from lower levels and making strong gains could either consider booking profits or tighten the stop losses,” Abhishek Chinchalkar FYERS told Moneycontrol.

“At these levels, risk management would be of utmost importance. The momentum can continue, but we would advise caution and close monitoring of price in the short-term,” he said.

IT, Pharma sectors take the lead:

Sectorally, the IT sector hogged the limelight as the S&P BSE IT index recorded gains of 34 percent in the September quarter, followed by the S&P BSE Healthcare index which was up 21 percent in the September quarter.

“IT & Pharma sectors were the lead gainers in the September quarter due to their earnings visibility and preference for defensive stocks amidst the Covid-19 led uncertainty,” said Shah of Samco Group.

“Strong revival in new orders, encouraging management commentary, shift to digital & the work from home culture has kept the market participants bullish on the IT space. Besides, robust demand from India bodes well for the local Pharma players as buyers look for alternatives outside China,” he added.

IT and Pharma stocks have performed strongly over the past six months, with the former gaining over 50 percent and the latter over 60 percent since April.

After the plunge in stock markets in March, investors increased their allocation to defensive sectors, IT and Pharma. The IT sector, in particular, has performed well since the pandemic and lockdowns began.

“Increasing digital spending by consumers, higher cost efficiency due to work from home policies, and increased outsourcing have benefited IT companies immensely, a trend which is likely to continue going forward,” Chinchalkar of FYERS told Moneycontrol.

“Meanwhile, due to the current Covid-19 pandemic, the sale of pharmaceuticals has risen significantly. This combined with continuous approvals from the US FDA followed by new drug launches and favourable policies has provided a booster to pharma stocks,” he added.