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Mid, small-caps outperform in four years of Narendra Modi government

May 25, 2018 14:52 IST

Analysts attribute this outperformance to the government's proactive economic reform measures

Illustration: Uttam Ghosh/

Mid-and small-cap indices have outperformed large-caps in the four years of Narendra Modi – led National Democratic Alliance (NDA) at the centre.


Between May 26, 2014 when the Modi government was sworn in and May 23, 2018, the S&P BSE Mid-cap and the S&P BSE Small-cap indices have rallied 86 per cent and 81 per cent respectively, as compared to around 39 per cent rise in the S&P BSE Sensex, ACE Equity data shows.

Analysts attribute this outperformance to the government’s proactive economic reform measures and low crude oil prices that translated into a better operational performance for the mid-and-small cap companies that eventually got translated into the stocks rallying at the bourses.

Ample liquidity, especially from the mutual funds also aided sentiment, they said.

“Many small-and mid-cap stocks that operate in micro and diversified businesses gained, supported by liquidity pumped in by the retail investors. Tyre, paints, chemical related companies / stocks also benefitted from low crude oil prices.

"The Modi government did well on economic reform measures and managed to stick to fiscal deficit targets. The market liked this and the investors were rewarded handsomely,” explains G Chokkalingam, founder and managing director at Equinomics Research.

Among individual stocks, Dalmia Bharat, IIFL Holdings, Natco Pharma, Whirlpool of India, 3M India, NBCC and Ashok Leyland from the mid-cap segment rallied 340 per cent - 740 per cent during this period, data shows.

On the other hand, Reliance Communications, Bank of India, Adani Power, Reliance Power, Union Bank of India and GMR Infrastructure are some of the top losers that slipped 51 per cent - 90 per cent during this period.

A wider selection from the BSE 500 index - a broader gauge of the country’s economic condition as reflected at the bourses - reveals an interesting picture with select stocks rallying over 1,000 per cent.

Minda Industries tops the charts with a gain of over 2,400 per cent followed by Avanti Feeds, KEI Industries, Caplin Point Industries, Phillips Carbon Black, Indiabulls Ventures, HEG Limited and Aegis Logistics that have gained between 1,200 per cent - 1,700 per cent.

The road ahead

Going ahead, crude oil prices, bond markets and interest rate trajectory – globally and in India, corporate earnings, currency movement, inflation and upcoming assembly elections are some of the factors that are likely have a bearing on how markets play out.

In this backdrop, analysts do not expect a runaway rally, especially in the mid-and-small-cap segments.

Deepak Jasani, head of retail research at HDFC Securities says mid-and small-caps will keep throwing up surprises over the next one year in moves, based on their small size/base, faster adjustment to emerging changes, financial and operational restructuring etc.

“Retail Investors would do well to classify segregate their choice of midcaps into three distinct categories: a) midcaps that are rallying to catch up on valuation with peers without a commensurate improvement in fundamentals; b) those that have shown resolve and grown in adverse times at a fast pace and their valuations have run up; and c) turnaround cases. An investment call should be made carefully,” he advises.

Sahil Kapoor, chief market strategist at Edelweiss Investment Research, on the other hand, believes the large-caps will have an upper hand going ahead, as the broader market remains under pressure.

“Market breadth has been weakening lately. The Nifty50 is likely to trade near the 10,000 level in the short-term and as we approach FY19 end. It is likely to be around 11,500 based on 17.5X FY20 EPS of 660 by June 2019,” he says.

Puneet Wadhwa in New Delhi
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