In 2022, the benchmark Nifty 50 has managed to outperform midcap and smallcap stocks. However, these indices have been less bullish in 2022 as compared to 2021 due to geopolitical tensions, rising interest rate scenario, inflationary pressures and other macroeconomic risks, leading to extreme volatility. Notably, smallcaps declined heavily on NSE amid volatile markets as compared to midcaps and largecaps. But the current index ratio suggests that there is a high buying potential in all the three indices. However, ICICI Direct expects Small-Cap and Mid-Cap to outperform the Nifty index over the next 2 years starting 2023.
From December 28, 2021 till date, the smelly The 50 Nifty Midcap 100 has climbed 5.5% against a gain of around 4.3%. However, the Nifty Smallcap 100 index has fallen by around 12.45 per cent year-to-date.
According to the report by ICICI Direct, the year-to-date growth of Nifty in 2021 was 24.1%, lower than the 46.1% YoY growth in Nifty. mid Cap 100 and Nifty up by 59.3% little hat 100.
In its market strategy report for 2023, ICICI Direct revealed that while analyzing market cycles over the last two decades, “we see that markets typically move in blocks of two to four years before seeing an interim low or correction.” Huh.”
Further, the note also states that interestingly, a trend is also evident in the Index Value Ratio (CY end), i.e. from high to low of index value in a block period.
Further, the brokerage’s note highlighted that the average reading in the last four market upcycles indicates that it is expected to grow 2.6 times for the small-cap domain over the next two to four years, which is 2.6 times the interim low Nifty Smallcap 100 index multiple. Is. Similar readings are pegged at 2.3x for Nifty Midcap 100 and 2x for Nifty 50. Thus, in an upcycle, returns in small caps are higher than mid caps which are still ahead of large caps (Nifty Index).
Additionally, the report pointed out that so far in 2022, the index ratio of Nifty stands at 1.7x versus 1.5x of Nifty Midcap 100 and 1.5x of Nifty Smallcap 100 index. On this reading, ICICI Direct’s note said, there is a potential of ~20% for Nifty 50, ~30% for Nifty Midcap 100 and ~50%+ for Nifty Smallcap 100 over the next two to three years.
Hence, the brokerage expects small-caps and midcaps to outperform the Nifty index over the next two to three years from CY23E.
On the earnings front, ICICI Direct’s note said that tracking the consensus reading from Bloomberg and taking FY2019 as the base year, considering the Covid and supply chain-led disruptions in FY20-22, Earnings are expected to be better in small caps (FY 19-25 CAGR: 28.5%) and midcaps (26% CAGR) vs large caps (15% CAGR). This reinforces our view that with earnings support, wealth creation can be much bigger in small caps, mid caps vs large caps.
Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint. We advise investors to do due diligence with certified experts before making any investment decision.
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