Foreign investors tap small and mid-cap firms to seek the next winners in booming Indian stock market
stock market are increasing exposure to small- and mid-cap companies that are outperforming larger peers. The number of firms with more than 10% overseas shareholding rose to 275 on the BSE 500 Index as of December-end, versus 257 a year ago, according to a Bloomberg analysis of foreign institutional ownership data. The increase was largely fueled by minnows.
Efforts to find the next winners in the world’s fastest-growing major economy are prompting global funds to go further down the market-cap ladder, adding to the exuberance that’s fueled a relentless rally in this segment. A gauge of small- and mid-cap stocks has returned 60% in the past year, compared with a 23% advance in India’s main S&P BSE Sensex Index. To bulls, the craze is backed by fundamentals.
Earnings for this cohort rose 29% in the latest quarter, nearly double the growth in large caps, according to an analysis from Nuvama Institutional Equities. Besides, many emerging themes can only be found in smaller companies, Rajat Agarwal, Asia equity strategist at Societe Generale, said by phone Wednesday. “If you want to own a pure-play EV company or a new-age technology company in India, you won’t find them among large caps." Kaynes Technology India, KFin Technologies and Home First Finance Co.
India, are among the companies in which foreign investors’ holding is now more than 10%. The increasing turnover in Indian equities is also luring investors. Daily trading value touched a record last month compared to that of Hong Kong, with smaller stocks grabbing a larger proportion of activity than their larger counterparts.
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