NEW DELHI: After outperforming the Sensex
in the year 2012, both the BSE
Mid-cap and Small-cap indices have corrected in the first month of 2013.
The BSE Mid-cap index has corrected by over 2 per cent compared to a 38.5 per cent gain clocked in the year 2012, while the BSE Small-cap index has plunged over 4 per cent compared to a 33 per cent gain in the year 2012.
The market has attracted a large amount of foreign flows, almost $3.5 billion, in the first month of January, while domestic investors have been sellers to the tune of $2.5-$3 billion.
Foreign investors have poured nearly $24-25 billion in the year 2012, which has typically been poured into some of the frontline heavy index names, say analysts.
According to Rajat Rajgarhia of Motilal Oswal Securities, the valuation gap right now between large caps and midcaps has been expanding and at some point of time, midcaps will have to come and participate in the rally for these markets to hold on at higher levels.
The key drivers for the Indian markets would be the upcoming budget, earning downgrade cycle which looks to have bottomed out, monetary easing by the Reserve bank of India and global liquidity, say analysts.
"For the year 2013, India markets are going to be a stock picker's market as a lot of mid-cap and small-cap stocks may turn into some promising bets or multi-baggers in the next 12 months," said Vivek Mavani, Independent Market Analyst and Portfolio Manager, in an interview with ET Now.
We have compiled views and recommendation on selected stocks or sectors which have the potential to become multi-bagger ideas in the mid and smallcap space:
Rajat Rajgarhia of Motilal Oswal Securities
The business cycles are turning around for many stocks right now and if one can look at the telecom stocks, there is a case that the business cycle is now reversing and investors should play that entire cycle.
Along with telecom, Rajgarhia is also bullish on PSU banks and PSU oil & gas companies where he sees reversal of asset quality issues for them. So valuations for all these sectors are fairly attractive, especially for the upstream ones like ONGC.
In a separate report, BNP Paribas said that the markets are likely to pick momentum as the overall earnings environment appears stable and the brokerage firm believes that the markets may be going through the last leg of earning downgrades in some sectors like auto, infra, PSU banks, while some other sectors like IT, oil & gas and telecom could see earning upgrades.
Manish Sonthalia, VP & Fund Manager, Motilal Oswal Asset Management-PMS
We have added City Union Bank to our portfolio as increase in voting rights, impeccable asset quality, Banking Amendment Bill and diversified business, all these factors are likely to push the stock higher.
The Banking Amendment Bill which increased the voting right cap from 10-26 per cent would be favourable for the stock as mergers and acquisitions in old private sector banks are now a reality.
The bank has impeccable asset quality, a much diversified loan book, retail lending, low ticket sizes and very good dividend yield in terms of loan growth. The bank is growing at 25 per cent and is available at reasonable valuations of around 1.5 book on an FY14 basis.