Retail investors’ return helps mid-and small-caps outdo blue chips

Mumbai: Mid- and small-cap shares have outperformed bluechips since June 1 driven by a revival in retail investor participation in the stock market since the start of the lockdown.

The BSE MidCap index has risen 13.6 per cent and small-cap index has gained 17.2 per cent since June against the 12.5 per cent advance in the Sensex. The gains in mid- and small-cap shares have been led by real estate and state-owned banks, which have been laggards in the past few years.

Shares of smaller companies have been laggards since January 2018 — when the sell-off in them started. The MidCap and SmallCap indices are 36 per cent and 58 per cent away, respectively, from their January 2018 peaks, while the Sensex is 16 per cent away from its record high hit in January this year.

Brokers said home-bound investors are lapping up battered shares of mid- and small-cap shares.

“Retail and HNIs have shown strong participation in midcaps and smallcaps in June. For this calendar year, the mid-cap index is now outperforming large caps. That itself is an indication of higher risk appetite in the broader market,” said Rajat Rajgarhia, CEO, Motilal Oswal Institutional Equities. “...PSUs and real estate sectors have been the top performers. All this indicates better risk appetite,” said Rajgarhia.

In the mid-cap space, state-owned banks have drawn huge interest from retail investors. IDBI Bank, Bank of India, and Indian Bank were among the top gainers with a surge of 39-108 per cent since June.

PSU banks and real estate shares have been among the biggest laggards in recent years. The BSE Realty Index has declined in seven out of the past 11 years, while the PSU Bankex has dropped six times since 2010. While PSU banks shares have been weighed down by non-performing asset (NPA)-related concerns and losing market share, most stocks of property developers have fallen because of slowing sales and debt problems

The BSE MidCap index is up 41 per cent from the 52-week low of 9,555.24 hit on March 24 and the BSE SmallCap index is up 48 per cent from the 52-week low of 8,622.24 hit on March 24.

“It is the end of a three-year cycle that midcaps have seen since January 2018 when the midcap index had hit a peak. They hit a bottom in March when the Nifty hit a low of 7,500 and the most beaten down stocks have surged since then,” said Sanjiv Bhasin, director, IIFL Institutional Equities. “This is partly because of strong participation from retail investors and extreme value in broader markets. It started with PSU banks which have been one of the most beaten down and PSU banks have strong re-rating potential,” said Bhasin.