Latest news with #VenugopalManghat
Economic Times
5 days ago
- Business
- Economic Times
Smallcap stocks are doubling money like it's 2024 once again. Should you jump in?
Money is doubling fast and it's not in the Sensex or Nifty. Smallcap stocks are once again stealing the spotlight in Indian markets, posting a stunning rally that has investors rushing back into the segment. ADVERTISEMENT The BSE Smallcap Index has jumped 21% in just three months, comfortably outpacing the Nifty's 12% gain in the same period. Several individual names have delivered astonishing returns — NACL Industries has soared 192%, while Garden Reach Shipbuilders (GRSE) is up 147%. Stocks like Suven Life, Centum Electronics, Cosmo First, Bharat Dynamics, Zen Tech, and Mangalore Chemicals have either doubled or come close. The smallcap momentum is unmistakable and it's being powered by both macro conditions and strong flows, just like what Dalal Street saw in 2024. 'We firmly believe that over the long-term in a growth economy like India, smallcap stocks could outperform largecaps,' said Venugopal Manghat, CIO – Equity at HSBC Mutual Fund. 'Smaller companies tend to thrive in expanding economic cycles leading to higher earnings growth. The environment is conducive — low inflation, falling interest rates, improving liquidity and strong tailwinds in manufacturing, infrastructure and financialization.'A mix of economic recovery, liquidity inflows and earnings optimism is fuelling the rally. But alongside the euphoria, voices of caution are growing louder. Also read: Don't ignore smallcaps: HSBC MF CIO on where growth lies in FY26 ADVERTISEMENT 'Despite the sharp upmove recently, largecaps currently offer a better balance of earnings visibility and valuation comfort on a forward-looking basis,' warned Krishna Appala, Fund Manager at Capitalmind PMS. 'The divergence between earnings and valuations in the broader market calls for greater selectivity. The environment today rewards fundamentals and discipline over broad-based exposure — especially when mid and smallcap multiples leave little room for error.'Indeed, valuations are no longer cheap. Trideep Bhattacharya of Edelweiss estimates that 'mid and small caps are trading at a 17% to 25% premium to their 10-year averages.' He emphasizes the importance of being selective: 'We advise that where there is a valuation premium, it must be matched with an earnings growth premium. Stocks with faltering growth but high valuations are in the penalty box.' ADVERTISEMENT Bhattacharya also advocates tailoring investment strategy to individual risk appetites: 'For conservative investors, we recommend flexicap funds. For moderate risk-takers, multicap funds. And for those with higher risk appetite and a 5–10 year horizon, midcap funds are ideal.'Fundamentals are showing signs of support. Some sectors posted better-than-expected numbers in the March quarter. 'There were a few pockets where Q4 results exceeded expectations,' said Sneha Poddar of Motilal Oswal. 'Raw material prices remained stable, global demand was supportive, and FMCG companies managed weaker urban demand with price hikes. Overall, demand wasn't as weak as feared.' ADVERTISEMENT Also read | Smallcap mania is back. But do Q4 earnings really justify the multibagger hype? Still, market veterans warn that the easy money may already be made. After a relentless three-month rally, the risks of overpaying in the smallcap space are rising, particularly in stocks where future earnings may not live up to the newly inflated real test now lies in sustainability. Will earnings keep pace with valuations? Will global liquidity remain supportive? And perhaps most importantly, will investors stay disciplined when the next correction hits? ADVERTISEMENT 'The divergence between earnings and valuations in the broader market calls for greater selectivity. The environment today rewards fundamentals and discipline over broad-based exposure — especially when mid and smallcap multiples leave little room for error,' Apala said. For now, the fireworks in smallcaps are lighting up investor portfolios. But those looking to join the party now may need to tread carefully. In this market, growth and discipline, not just price charts, will separate the winners from the rest. (Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)
Time of India
5 days ago
- Business
- Time of India
Smallcap stocks are doubling money like it's 2024 once again. Should you jump in?
Smallcap stocks are experiencing a resurgence, mirroring the gains seen in 2024, with the BSE Smallcap Index significantly outperforming the Nifty. While economic recovery and liquidity inflows fuel this rally, experts caution about stretched valuations and the need for selective stock picking based on strong fundamentals. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Money is doubling fast and it's not in the Sensex or Nifty Smallcap stocks are once again stealing the spotlight in Indian markets, posting a stunning rally that has investors rushing back into the BSE Smallcap Index has jumped 21% in just three months, comfortably outpacing the Nifty's 12% gain in the same period. Several individual names have delivered astonishing returns — NACL Industries has soared 192%, while Garden Reach Shipbuilders (GRSE) is up 147%. Stocks like Suven Life, Centum Electronics, Cosmo First, Bharat Dynamics, Zen Tech, and Mangalore Chemicals have either doubled or come smallcap momentum is unmistakable and it's being powered by both macro conditions and strong flows, just like what Dalal Street saw in 2024.'We firmly believe that over the long-term in a growth economy like India, smallcap stocks could outperform largecaps,' said Venugopal Manghat, CIO – Equity at HSBC Mutual Fund. 'Smaller companies tend to thrive in expanding economic cycles leading to higher earnings growth. The environment is conducive — low inflation, falling interest rates, improving liquidity and strong tailwinds in manufacturing, infrastructure and financialization.'A mix of economic recovery, liquidity inflows and earnings optimism is fuelling the rally. But alongside the euphoria, voices of caution are growing louder.'Despite the sharp upmove recently, largecaps currently offer a better balance of earnings visibility and valuation comfort on a forward-looking basis,' warned Krishna Appala, Fund Manager at Capitalmind PMS. 'The divergence between earnings and valuations in the broader market calls for greater selectivity. The environment today rewards fundamentals and discipline over broad-based exposure — especially when mid and smallcap multiples leave little room for error.'Indeed, valuations are no longer cheap. Trideep Bhattacharya of Edelweiss estimates that 'mid and small caps are trading at a 17% to 25% premium to their 10-year averages.' He emphasizes the importance of being selective: 'We advise that where there is a valuation premium, it must be matched with an earnings growth premium. Stocks with faltering growth but high valuations are in the penalty box.'Bhattacharya also advocates tailoring investment strategy to individual risk appetites: 'For conservative investors, we recommend flexicap funds. For moderate risk-takers, multicap funds. And for those with higher risk appetite and a 5–10 year horizon, midcap funds are ideal.'Fundamentals are showing signs of support. Some sectors posted better-than-expected numbers in the March quarter. 'There were a few pockets where Q4 results exceeded expectations,' said Sneha Poddar of Motilal Oswal. 'Raw material prices remained stable, global demand was supportive, and FMCG companies managed weaker urban demand with price hikes. Overall, demand wasn't as weak as feared.'Still, market veterans warn that the easy money may already be made. After a relentless three-month rally, the risks of overpaying in the smallcap space are rising, particularly in stocks where future earnings may not live up to the newly inflated real test now lies in sustainability. Will earnings keep pace with valuations? Will global liquidity remain supportive? And perhaps most importantly, will investors stay disciplined when the next correction hits?'The divergence between earnings and valuations in the broader market calls for greater selectivity. The environment today rewards fundamentals and discipline over broad-based exposure — especially when mid and smallcap multiples leave little room for error,' Apala now, the fireworks in smallcaps are lighting up investor portfolios. But those looking to join the party now may need to tread carefully. In this market, growth and discipline, not just price charts, will separate the winners from the rest.: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
Economic Times
6 days ago
- Business
- Economic Times
Don't ignore smallcaps: HSBC MF CIO on where growth lies in FY26
Smallcap stocks are once again in the spotlight, outperforming broader indices and drawing strong interest from retail investors. According to Venugopal Manghat, CIO – Equity at HSBC Mutual Fund, the outperformance is not just liquidity-driven but backed by fundamentals, with India's strong economic growth, falling interest rates, and structural shifts like manufacturing and financialization creating a fertile ground for smaller companies to thrive in FY26 and beyond. ADVERTISEMENT Edited excerpts from a chat: I believe there are two reasons why funds are sitting on a higher level of cash on an average. Firstly, global uncertainties have increased, thereby influencing views on growth, interest rates, trade, inflation etc, making it difficult to take decisions. Secondly, despite the market correction in the first quarter of the year, valuations of companies have remained above historic average multiples given the higher growth expectation. Subdued earnings growth in FY25 and the cut to forecasts have also contributed to the valuation remaining higher than the past and could be making it difficult to deploy cash. Also, domestic SIP inflows continue to remain extremely strong adding to the liquidity. However, we believe that there are investment opportunities in every market and hence don't take cash firmly believe that equity markets reflect the economic growth prospects of a country and its outlook over the coming years. Markets tend to price in fundamental changes in advance and hence one needs to keep this in mind when analysing the recovery. The Indian market corrected meaningfully in the first quarter of the year, factoring in lower growth rates, disappointment on the capex front, tight liquidity, global uncertainties, the last two months we have seen many of these factors reversing, especially the domestic factors. Economic growth seems to have improved, crude oil price has corrected, inflation is down, an interest rate cut cycle has begun, currency has become stable again, liquidity has improved etc. ADVERTISEMENT The one uncertainty is from the global side, on tariffs and growth. However, markets are probably expecting a positive outcome eventually in terms of market share gains for India and global economic growth to not go down significantly. Along with these factors we believe that the earnings downgrade cycle has probably bottomed, providing further support to markets. Hence, I would attribute the move largely to fundamentals. However, the pace of recovery could be because of the gush of liquidity from investors. Having said that, investors need to be cautious as the global uncertainties firmly believe that over the long-term in a growth economy like India, smallcap stocks could outperform largecaps. Our belief stems from the evidence that smaller companies have been found to do well in expanding economic cycles leading to higher earnings growth rates. ADVERTISEMENT The environment is now conducive for smaller companies to grow faster with the economy growing strongly, low inflation, falling interest rates, improving liquidity and most importantly, significant opportunities unfolding due to trends in manufacturing, infrastructure investments and financialization in the economy. The superior performance of smallcaps in the short-term is also supported by strong domestic and retail flows which gravitate towards mid/ smallcaps over largecaps. ADVERTISEMENT In any market there will be weak / uninformed / not so convinced investors, who chase SME and momentum-driven smallcap stocks, lured by expectation of quick money-making. However, I think retail investors are learning and continuously evolving. There is a better understanding of markets now compared to the last cycle. Every correction and recovery in the market helps in refining and improving investor behaviour. Also, investors who invested early in the cycle are sitting on sufficient profits and hence there is no panic. Healthy SIP inflows, despite the severe correction, is a proof of the maturity of retail investors. With increasing investor education, rising income levels, increasing women participation, low penetration level of equities and mutual funds in India and higher risk-taking ability of Millennials/ Gen Zs, we believe that the domestic retail investor base is set to were already low at the beginning of the 4QFY25 earnings season, post two consecutive quarters of earnings downgrades and disappointments. On these low expectations, earnings have fared better than expectations. ADVERTISEMENT Nevertheless, we have already seen 1-2% downgrade for FY26 Nifty EPS, driven by cut in estimates for IT and Consumer Staples. However, we see the earnings downgrade cycle close to bottoming which augurs well for equity markets. We believe the market recovery is due to multiple factors as outlined earlier and not only because of the Q4 earnings are positive on all three segments over the long-term given India's stage of growth as an economy. However, we have a slightly different approach towards investing in each of these segments. For instance, within consumption, we are not as positive on consumer staples. The sector has seen a difficult period with technology and new formats disrupting the industry. Also, as households have higher disposable income, there is aspirational buying with many of the basic requirements having been met already. We are more positive on consumer discretionary sectors as the penetration level is very low and there is a large unorganized market which is gradually shifting to the organized space. Higher per capita income also augurs well for discretionary consumption. The stocks within many of these discretionary sectors are small with low market capitalization. We believe that there is a great opportunity to take advantage of the potential growth in these sectors in the in capex / investments, we like power, manufacturing and defence over roads, railways and some other traditional segments. The ongoing liquidity infusion by RBI, expected rate cuts and regulatory easing should augur well for some NBFCs and banks in the short-term. Financialisation of savings is also a long-term theme, with mutual funds, capital market intermediaries, exchanges, insurance companies expected to do well. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)
Time of India
6 days ago
- Business
- Time of India
Don't ignore smallcaps: HSBC MF CIO on where growth lies in FY26
Smallcap stocks are once again in the spotlight, outperforming broader indices and drawing strong interest from retail investors . According to Venugopal Manghat, CIO – Equity at HSBC Mutual Fund, the outperformance is not just liquidity-driven but backed by fundamentals , with India's strong economic growth, falling interest rates, and structural shifts like manufacturing and financialization creating a fertile ground for smaller companies to thrive in FY26 and beyond. Edited excerpts from a chat: Amid rising inflows into mutual funds, the industry has seen rising cash levels in portfolios. Is it really that tough to find good stocks at reasonable valuation now? I believe there are two reasons why funds are sitting on a higher level of cash on an average. Firstly, global uncertainties have increased, thereby influencing views on growth, interest rates, trade, inflation etc, making it difficult to take decisions. Secondly, despite the market correction in the first quarter of the year, valuations of companies have remained above historic average multiples given the higher growth expectation. Subdued earnings growth in FY25 and the cut to forecasts have also contributed to the valuation remaining higher than the past and could be making it difficult to deploy cash. Also, domestic SIP inflows continue to remain extremely strong adding to the liquidity . However, we believe that there are investment opportunities in every market and hence don't take cash calls. Markets are dancing near lifetime highs. How much of this is driven by fundamentals and how much by FOMO? We firmly believe that equity markets reflect the economic growth prospects of a country and its outlook over the coming years. Markets tend to price in fundamental changes in advance and hence one needs to keep this in mind when analysing the recovery. The Indian market corrected meaningfully in the first quarter of the year, factoring in lower growth rates, disappointment on the capex front, tight liquidity, global uncertainties, etc. Live Events Over the last two months we have seen many of these factors reversing, especially the domestic factors. Economic growth seems to have improved, crude oil price has corrected, inflation is down, an interest rate cut cycle has begun, currency has become stable again, liquidity has improved etc. The one uncertainty is from the global side, on tariffs and growth. However, markets are probably expecting a positive outcome eventually in terms of market share gains for India and global economic growth to not go down significantly. Along with these factors we believe that the earnings downgrade cycle has probably bottomed, providing further support to markets. Hence, I would attribute the move largely to fundamentals. However, the pace of recovery could be because of the gush of liquidity from investors. Having said that, investors need to be cautious as the global uncertainties continue. Smallcap stocks are once again the flavor of the season and have outperformed the headline indices. Is it again due to liquidity or because the earnings season was relatively better for smaller stocks than bluechips? We firmly believe that over the long-term in a growth economy like India, smallcap stocks could outperform largecaps. Our belief stems from the evidence that smaller companies have been found to do well in expanding economic cycles leading to higher earnings growth rates. The environment is now conducive for smaller companies to grow faster with the economy growing strongly, low inflation, falling interest rates, improving liquidity and most importantly, significant opportunities unfolding due to trends in manufacturing, infrastructure investments and financialization in the economy. The superior performance of smallcaps in the short-term is also supported by strong domestic and retail flows which gravitate towards mid/ smallcaps over largecaps. What's your reading of retail investor behaviour right now? Have most of them learnt lessons after playing with fire by chasing SME and momentum-heavy smallcaps? In any market there will be weak / uninformed / not so convinced investors, who chase SME and momentum-driven smallcap stocks, lured by expectation of quick money-making. However, I think retail investors are learning and continuously evolving. There is a better understanding of markets now compared to the last cycle. Every correction and recovery in the market helps in refining and improving investor behaviour. Also, investors who invested early in the cycle are sitting on sufficient profits and hence there is no panic. Healthy SIP inflows, despite the severe correction, is a proof of the maturity of retail investors. With increasing investor education, rising income levels, increasing women participation, low penetration level of equities and mutual funds in India and higher risk-taking ability of Millennials/ Gen Zs, we believe that the domestic retail investor base is set to expand. With valuations stretched in certain pockets of the market, do you think the Q4 earnings season was strong enough to justify the rally that we are seeing? Expectations were already low at the beginning of the 4QFY25 earnings season, post two consecutive quarters of earnings downgrades and disappointments. On these low expectations, earnings have fared better than expectations. Nevertheless, we have already seen 1-2% downgrade for FY26 Nifty EPS, driven by cut in estimates for IT and Consumer Staples. However, we see the earnings downgrade cycle close to bottoming which augurs well for equity markets. We believe the market recovery is due to multiple factors as outlined earlier and not only because of the Q4 earnings season. As an investor today, would you back consumption, capex, or financials in FY26? We are positive on all three segments over the long-term given India's stage of growth as an economy. However, we have a slightly different approach towards investing in each of these segments. For instance, within consumption, we are not as positive on consumer staples. The sector has seen a difficult period with technology and new formats disrupting the industry. Also, as households have higher disposable income, there is aspirational buying with many of the basic requirements having been met already. We are more positive on consumer discretionary sectors as the penetration level is very low and there is a large unorganized market which is gradually shifting to the organized space. Higher per capita income also augurs well for discretionary consumption. The stocks within many of these discretionary sectors are small with low market capitalization. We believe that there is a great opportunity to take advantage of the potential growth in these sectors in the long-term. Similarly, in capex / investments, we like power, manufacturing and defence over roads, railways and some other traditional segments. The ongoing liquidity infusion by RBI, expected rate cuts and regulatory easing should augur well for some NBFCs and banks in the short-term. Financialisation of savings is also a long-term theme, with mutual funds, capital market intermediaries, exchanges, insurance companies expected to do well.
