Small has turned out to be big with minnows ruling the stock markets in 2017, giving handsome returns of up to 60 per cent for investors and outpacing their bigger peers.
While the BSE smallcap index gained 7,184.59 points or 59.64 per cent this year, the midcap index zoomed 5,791.06 points or 48.13 per cent, an analysis of their performance showed.
On the other hand, the 30-share bluechip Sensex surged 7,430.37 points, or 27.91 per cent, in 2017.
"The smallcap and midcap indices have done exceptionally well as compared to the Sensex, mainly led by domestic inflows into mutual funds," said Rusmik Oza, Head-midcaps, Kotak Securities.
The midcap index hit its lifetime peak of 17,851.03 on December 29, while smallcap index scaled its record high of 19,262.44 on the same day — also the last trading day of the year.
The 30-shares benchmark index touched its all-time high of 34,137.97 on December 27 this year.
"In the 5 years preceding 2013, the global economy was fighting recession, with midcap index losing 6 per cent in 2013. During this period, the companies of scale and proven record of management held nerves, which is why benchmark indices like Nifty outperformed the smaller companies," said Anand James, Chief Market Strategist, Geojit Financial Services.
"From 2014 onwards, with a stable government in the centre, business optimism improved drastically. The boost to infrastructural projects and allied reforms, loosened several debt burdened areas. This has had a multiplier effect on the economy, which meant that not only did, realty, infrastructure housing, construction ancillaries went up, it also shored up overall expectation of better days.
"So, naturally, the stocks in these sectors, especially the smaller and medium ones, which were hitherto underowned, because of lack of visibility of future prospects, found lot of buyers," James added.
Market players say smaller stocks are generally bought by local investors, while overseas investors focus on blue-chips.
"The global equity market is going through a bull run and we also did well despite some bottlenecks on domestic front where domestic liquidity is a key driver of Indian equity market bull run especially the midcap and smallcap space which witnessed eye-popping returns to investors," said Santosh Meena, Sr Research Analyst, Swastika Investmart Ltd.
The midcap index tracks companies with a market value that is on an average one-fifth of blue-chips or large firms. Smallcap firms are almost a tenth of that.
"The clear outperformance that has been persistent for the last three years is a reflection of optimism that the structural bottlenecks are on the mend. It also depicts a matured risk appetite towards discovering quality companies at relatively cheaper prices," James added.
"Undoubtedly, the year belonged to mighty bulls as we saw massive wealth creation right from the word go. There were couple of hiccups during the year, but they eventually turned out to be whipsaws as the index kept on enjoying its bull run to eventually conclude the year at record highs," said Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel Broking.
On the strong show of the stock market Oza said, "Domestic flows have been the primary reason for the strong performance of markets this year. Stronger rupee has also helped FIIs report better returns in dollar terms.
"Demonetisation has also facilitated higher inflows into equities. The government continued to take bold steps in this calendar year which had a positive impact on the banking sector. Healthy returns in IPOs this year has also attracted new investors into equities."
Talking about the outlook for smallcap and midcap indices next year, Deepak Jasani, Head – Retail Research, HDFC securities said, "While the largecaps have their own headwinds in different spheres, mid and small caps will keep throwing up surprises in stock moves based on their small size/base, faster adjustment to emerging changes, financial and operational restructuring and corporate announcements including merger, demerger, hive-offs, turnaround, asset value unlocking etc."
"The calendar year 2017 has been a great year for investors. While we expect a double digit return even in 2018, investors would do well to moderate their expectations for index returns in calendar 2018," Jasani added.
BSE's mid-cap index outperformed both its bigger and smaller peers last year, giving returns of nearly 8 per cent to investors.
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