Brokers back small and mid-cap stocks on high earnings outlook
brokers are recommending to investors with a high-risk appetite to make fresh investments in such stocks or schemes that invest here. Strength in earnings growth and decline in share valuations in the mid-cap and small-cap segments following the recent drop in stock prices are some key reasons for holding them or buying them afresh.
Motilal Oswal Asset Management said in a note that the valuation premium that mid-cap and small-cap indices held over Nifty has halved to 14% for both against 24% and 29%, respectively.
BSE SmallCap index has fallen 11.32% from its February high, while the mid-cap index has fallen 6.25%. Many small-cap and micro-cap stocks have dropped 20-45% on average in this period. Motilal Oswal AMC's optimism on these stocks is on the grounds that earnings growth is still strong. «High earnings growth estimates, participation in market-favoured themes and dedicated investment flows make a continued case for investment into mid- and small-cap funds,» said the fund house, which recommends long-term investors with one to over five years investment horizon to invest in them. For FY23 to FY25, it estimates earnings growth for mid- and small-cap index at 31% and 33%, respectively as against 16% in large-caps.
The optimism is also because the hot investment themes such as manufacturing, capital goods and niche high-growth businesses in healthcare and IT are smaller companies. ICICI Securities said small-caps are at their most 'unattractive relative valuation zone' in terms of their risk premium over
