The broader market has demonstrated significant outperformance compared to Nifty in Samvat 2079. While Nifty’s year-to-date returns are around 7.5% in the calendar year 2023, Nifty Midcap has surged nearly 28.9%, and Nifty Small Cap 100 has seen an impressive 38% year-to-date return. Despite this remarkable outperformance, analysts caution that mid and small-cap valuations are stretched, trading at a premium to large caps.
Analysts, including Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, advise caution in the mid-cap and small-cap space due to stretched valuations. Some small-cap mutual funds, such as Nippon Small Cap Fund, have raised concerns about high valuations by limiting bulk investments in their funds. Dr. Vijayakumar suggests refraining from lump-sum investments in mid and small caps, but he recommends continuing SIPs in mutual funds.
While acknowledging individual winners in the broader market, analysts, including Ambreesh Baliga, an independent market expert, note the stretched valuations in the mid and small-cap segment. The momentum in this space remains strong, but caution is advised.
Manish Chowdhury, Head of Research at StoxBox, expresses optimism about midcap and smallcap stocks delivering positive returns in Samvat 2080. However, he believes that large caps are better positioned compared to mid and small-cap companies. Despite corporate earnings growth, benchmark index returns (Nifty and Sensex) have not aligned with earnings growth, favoring large caps for the year ahead.
Chowdhury’s stock recommendations include:
- Ashoka Buildcon (Target Price: ₹163 per share):
- Robust order inflows, innovative construction practices, and efficient project execution.
- Asset monetization program supporting Ashoka’s full cycle credentials.
- Positive long-term prospects, valued at a Price to Earnings of 13 times based on FY23 earnings.
- Colgate-Palmolive (Target Price: ₹2,500 per share):
- Significant growth opportunity in oral care business, with a large portion of the population yet to adopt regular oral care habits.
- Green shoots in rural recovery and volume improvement in the last quarter.
- Positive outlook with new CEO Ms. Prabha Narasimhan and global portfolio integration strategies.
- Positive long-term prospects, valued at a Price to Equity of 50 times based on FY23 earnings.