The S&P BSE Midcap and the S&P BSE Smallcap indices have managed to stay afloat in a volatile January that saw the frontline indices hit their respective 52-week high levels and then slip.
While the S&P BSE Sensex has lost over 2 per cent thus far in January, the S&P BSE Midcap and the S&P BSE Smallcap indices have gained nearly 2.5 per cent and 4 per cent, respectively during this period.
Salasar Techno Engineering, IFCI, Ganesh Housing Corporation, IRFC, Waaree Renewable Technologies, RVNL, Kamdhenu Ltd., Transformers & Rectifiers (India), Oracle Financial Services Software, Tourism Finance Corporation Of India, Alok Industries and Ircon International have been among the top mid-and small-cap stocks that have bolted 44 – 83 per cent thus far in January, shows ACE Equity data.
That said, most analysts have turned cautious on the markets in the backdrop of global (geopolitical tensions, developments in the Red Sea, firm bond yields and monetary policy of global central banks) and the events (vote on account/interim budget and the general elections) lined up over the next few months back home.
These events, they suggest, will keep the sentiment in check over the next few weeks, and investors in this backdrop should adopt a stock-specific approach while investing.
“On political front, tension is extending to Pakistan and Iran. Post-election in Taiwan, war of words between China and Taiwan is not conducive.
"Bitcoin is once again emerging as a competing asset class for the global equities, and it looks like interest rate reversal in both the US and China may be delayed.
"Most worrying concern is that many small-caps with unattractive business models or balance sheets have multiplied market caps to a few thousand crores from a couple of hundred crores,” cautioned G Chokkalingam, founder and head of research at Equinomics Research.
Most of these 'wealth creating' stocks from small and midcap (SMC) segments, he said, trade at stretched valuations.
“If there is any sudden rush to realise the dream of wealth creation, in our view, finding adequate liquidity in the entire SMC segment without damaging the valuations would be extremely difficult.
"Hence, we continue to suggest toning down expectations in the SMC segment, and tilt towards large-caps,” he advises.
The broader market, according to Vinod Nair, head of research, Geojit Financial Services, is unable to hold on to gains due to high valuations, subpar results, and persisting geopolitical tension in the Middle East, followed by an F&O expiry, which is weighing on the overall market sentiment.
“Going forward, global market factors like the policy rate decisions of major countries will affect the market, and markets are likely to witness stock-specific actions during the ongoing earnings season,” he said.
Valuation-wise, the markets, some analysts believe, are not too expensive.
The Nifty is now 20x 1-year forward - higher than the past 10-year average, but relative to emerging markets (EM) ex-China, the premium at 67 per cent is only somewhat higher than historical average.
“On price/earnings-to-growth (PEG) basis, the Indian market appears reasonable.
"Our December 2024 Nifty target of 24,000 implies 12 per cent total return and assumes current multiple to sustain, helped by 12 per cent EPS CAGR and strong flows.
"We remain positive on domestic economy / capex related plays,” wrote Mahesh Nandurkar, managing director (MD) at Jefferies, in a note co-authored with Abhinav Sinha and Nishant Poddar.
Jefferies' key picks are large banks (Axis, ICICI), developers (Lodha, GPL), Power (Coal India, JSW Energy) two-wheeler (TVS, Eicher), Telecom (Bharti) and capital goods (Adani Ports, Kajaria).
