Small cap stocks to hog lime light

Mumbai: The small cap stocks have stolen the lime light on the domestic bourses in the recent rally with over 160 stocks hitting their 52-week high even as large cap stocks are finding stiff resistance at higher levels.

The strong rally in small cap stocks has also helped the BSE small cap index to hit an all-time high last week while the BSE mid cap index is just 245 point away from its lifetime high.

On the other hand, the 30-share BSE Sensex is still 1690 points away from its record high of 30,024.74, hit on March 4, 2015.

The continuous flow of funds from domestic investors is the primary reason behind the sharp surge in the prices of small and mid cap stocks. However, experts are advising caution as the rally is largely liquidity driven and the corporate fundamentals are yet to keep pace with the valuations.

“It is more a liquidity driven rally than a fundamental one. The relative out-performance of small cap stocks are attracting small investors towards mutual funds schemes focussed on small and mid cap stocks,” said Ambareesh Baliga, senior research analyst.

According to Mr Baliga, the latest quarterly numbers came better that what street had anticipated as companies barring few in the consumer sector managed to shrug of the adverse impact of the demonetisation.

“However, the real impact of the note ban would be felt in their January–March quarterly numbers. Since the valuations are looking a bit stretched at the moment, it is better to book some partial profits,” he added.

During the last three months, equity schemes offered by mutual funds saw a total inflow of Rs 21,000 crore with the net inflow in December (Rs 9,196 crore) being the highest in nineteen month.

According to the data available with Value Research, a mutual fund tracking firm, the small cal equity schemes have given an average annual return of 34.79 per cent when compared to 24.36 per cent return generated by large cap funds.