These 12 stocks are Anand Rathi Wealth, Control Print, Gravita India, IRCON International, Jupiter Wagons, KDDL Ltd, Kilburn Engineering, KSolves India, Saksoft, Shilchar Technologies, Sky Gold, and Som Distilleries Breweries.
Stocks in the smallcap segment have had a dream run this year, backed by the relentless buying, particularly by retail investors. The S&P BSE Smallcap index has given a staggering 45% returns year-to-date, against the 16 returns given by benchmark Sensex.
Not only have the above-mentioned stocks given multibagger returns, but all of them scaled lifetime highs this year, with five achieving it in December.
What could have driven retail interest in most of the stocks is the consistent earnings performance of the companies. All the 12 companies have reported double-digit year-on-year (YoY) growth in revenue and profits for the last three consecutive quarters.
IRCON International, which has given 173% returns in 2023 so far, saw retail holding rise to 17.48% as of September end, from 13.91% in December. The company reported 28-33% YoY growth in revenue in the past three quarters, and 14-45% growth in profits.
Note that retail investors holding nominal share capital of up to Rs 2 lakhs have been considered.The other stock in the railway sector that retail investors fell in love with is Jupiter Wagons. This stock has given a whopping 245% returns so far in 2023. Retail holding in the stock nearly doubled in three quarters and was 6.3% as of September end. In the last two quarters, the company has seen an over twofold jump in revenues and multifold growth in profits.
Discretionary consumption play favoured watch component maker KDDL, which has rallied 164% in 2023 and has seen consistent rise in retail holding.
Retail investors held 16.83% stake in the company as of September end, compared to 15% in December last year. The company has reported 30-34% YoY growth in revenue in the past three quarters, and 82-382% growth in profits.
BSE-listed Shilchar Technologies, which manufactures electrical equipment for the power sector joined the smallcap rally, giving a staggering 407% returns year-to-date. Even after such a rally, the stock trades at about 26 times its 12-month trailing earnings, which is lower than the industry average, Trendlyne data showed. Retail investors have increased their holding by 364 basis points in three quarters to 13.98% at the end of September quarter.
In the broking space, Anand Rathi Wealth saw strong retail interest, with their holding rising to 14.87% at the end of September quarter, from 11.84% in December last year.
This stock has given multibagger returns of 256% in 2023, and consistent growth in earnings in the past three quarters. From a valuation perspective, the stock trades at 55 times its 12-month trailing earnings, which is higher than the industry average.
Will Retail Frenzy Continue?
Unlike largecaps, the performance of smallcap and midcap stocks hinges a lot on the combination of earnings growth, incremental returns on capital, and valuation.
Money managers acknowledge that smallcaps look stretched from a valuation perspective, and that one needs to be extremely selective in this space. However, they do see stocks of certain sectors and sub-sectors continuing to throw investment opportunities.
Nuvama Institutional Equities has identified three such sectors that offer value proposition to investors.
The first one is the power equipment and cables segment given the aggressive power capacity expansion plans which will keep order inflow momentum strong for many of the companies.
EMS and semiconductors is another sub-sector the brokerage is positive on as India aims to take domestic electronics production to $300 billion in 3-4years, from the current $100 billion.
The third one is railways given the government’s increased focus to boost railway infrastructure. Construction of metros and manufacturing of Vande Bharat trains are multi-year capex opportunities.
While there are investment opportunities still available in the smallcap space, analysts don’t see incremental returns in the near term in the backdrop of the stellar run this year.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)