Small cap stocks reap big gains in fiscal year 22; Deliver up to 36.64% returns

Small stocks made big gains in fiscal year 2021-22 by giving away returns of up to 36.64 percent, outpacing a larger benchmark measure and experts believe they may continue to outperform in fiscal year 23.

Markets faced several headwinds in the latter part of the last fiscal with the emergence of geopolitical tensions, inflation fears and selling in the fisheries sector.



Analysts said the first half of the last fiscal year was very good, while the market entered a consolidation in the second half, coupled with high volatility.

The BSE small-cap index jumped 7,566.32 points, or 36.64 percent, in the 2021-22 fiscal year, and the mid-cap gauge rose 3,926.66 points, or 19.45 percent.

By comparison, Sensex closed the 2021-22 fiscal year with a gain of 9,059.36 points, or 18.29 percent.

“The market is climbing all the walls of anxiety and showing strong resilience is a feature of a strong bull market. We are in a structural bull market, however, intermediate corrections will be part of this journey.

Barth Nyati, founder of Tradingo said:

Niate added that historically, April remains one of the best months for the stock market, especially for medium and small companies, as the BSE Small Stock Index has finished in the green for 14 out of 15 years with an average gain of 7 percent.

“Therefore, we can expect a great start to FY23 for the broader market,” Niate said.

The Small Capital Index reached an all-time high of 31304.44 on January 18 this year, after hitting a 52-week low of 20,282.07 on April 19, 2021.

The mid-head gauge reached a record high of 27,246.34 on October 19 last year. It had hit a 52-week low of 19,423.05 on April 19, 2021.

Sensex reached an all-time high of 6,2245.43 on October 19, 2021.

Vinod Nair, Head of Research at Geojit Financial Services, said, “The broad market correction in the past five to six months has made SMEs a good investment proposition for FY23. Smallcaps trades cheaper than large and mid-caps on forward earnings growth basis. Short-term volatility is unavoidable, as uncertainty prevails over rising inflation, a slowing economy and a lower level of future profits.”

According to Nair, smallcaps have this benchmark to outperform the major indices during the glorious period and when backed by liquidity.

“This time, combined with the strong recovery of the local economy and strong inflows from retail and microfinance funds, made it outperform,” he noted.

According to market analysts, small stocks are generally bought by domestic investors, while foreign investors focus on big companies or large companies.

Nyati said continued selling by FIIs in the second half put large-cap stocks behind while local funds continued to support the mid- and small-cap capital basket.

He added that the main reason why mid- and small-cap stocks outperformed is the strong resilience of the Indian economy in tough times, and the continued belief in domestic money in our economy is another factor that has helped the broader market stay ahead.

“In our view, the topic of post-pandemic openness provides a significant growth runway for many small and mid-cap stocks as they tend to grow faster,” said S Ranganathan, Head of Research at LKP Securities.

In fiscal year 21, the BSE small-cap index jumped 11,040.41 points, or 114.89 percent, while the mid-cap index jumped 9,611.38 points, or 90.93 percent.

By comparison, the BSE 30-share index registered 20,040.66 points, or a 68 percent gain during the 2020-2021 fiscal year.

(The title and image for this report may have been reformulated only by the Business Standard staff; the rest of the content is automatically generated from a shared feed.)

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