Largecap, midcap or smallcap shares: Which of them will lead recovery in H2 2022?

Largecap, midcap or smallcap shares: Which of them will lead recovery in H2 2022?

Largecap, midcap and smallcap indices took a severe hit in the first half of this year. BT spoke to experts on how each of these may perform in the second half of the year.

However, these indices have erased some losses as market has logged a strong rally during the last few sessions. However, these indices have erased some losses as market has logged a strong rally during the last few sessions.

The Indian stock market has left investors worried in the first half of this year. Amid highly volatile global indices, Sensex and Nifty plunged nearly 9 per cent each in H12022.

A host of factors such as Russian attack on Ukraine, high inflation, interest rate hikes by US Federal Reserve and the resurgence of Covid-19 cases across the world kept sentiment weak across global markets.

India too saw investors pulling money out of equities on inflation concerns, profit-booking and worries over the economic slowdown.   

Apart from the benchmark indices, largecap, midcap and smallcap indices also took a severe hit in the first half of this year.

BSE midcap index lost 3,257 points or 13.04 per cent in the first half of the current year. The index, which closed at 24,970 on December 31, 2021 fell to 21,713 on June 30, 2022.

BSE largecap index too slipped 8.94 per cent or 598 points during the period. The index, which closed at 6,689 on December 31, 2021 fell to 6,091 on June 30, 2022. Similarly, BSE smallcap index crashed 15.85 per cent or 4,671 points during the period.

The index closed at 29,457 on December 31 last year and ended at 24,786 on June 30 this year. However, these indices have erased some losses as market has logged a strong rally during the last few sessions.

Share Market Live: Sensex rises 230 pts, Nifty at 16,200; M&M, L&T top gainers

Here's a look at what analysts said about the likely performance of these indices in the next six months.

Ravi Singhal, CEO, GCL

"As we can see, the Nifty is down nearly 17 per cent from its high, the Nifty Midcap is down nearly 25 per cent, and the Nifty Small Cap is down 38 per cent from its high. We believe that the Nifty Midcap Index is stronger than both indices and that it will reach new highs in the next six months.

Reasons for likely rise in the midcap index are inflation can be brought under control, Russia Ukraine's war has reached its conclusion and a good monsoon."

Multibagger stocks: These stocks delivered up to 1,500% return in just 9 months

Manoj Dalmia, Founder and Director, Proficient Equities

"Currently, we are seeing some recovery in all large, small, and midcap stocks. There can be a decrease in profit margins for these companies due to inflationary cost pressures.

We expect midcap and small caps to perform better in the second half of 2022 due to their volatile nature and they can bounce back quickly. Small caps and midcaps majorly have better margins which can protect them from these macro shocks and protect the earnings, compared to large caps which have lesser margins but there are more downside risks in small and midcaps owing to lesser asset base compared to largecaps.

The geopolitical situation and the consequently elevated commodity prices impart considerable uncertainty to the domestic inflation outlook although they have been cooling recently. Further, the forecast of a normal monsoon goes well for agricultural production and the food price outlook. Edible oil prices remain under pressure due to global supply conditions which can affect some FMCG companies as it's their key raw material. International crude oil prices, however, remain elevated. There are also upside risks from revisions in the prices of electricity but a rebound in services is likely to increase urban consumption, going forward. Investment activity is expected to be supported by improving capacity utilisation, the government's CAPEX push, and strengthening bank credit."

Sneha Poddar, AVP Research, Broking and Distribution, Motilal Oswal Financial Services  

"Given this sharp underperformance, we believe midcaps are likely to bounce first as compared to smallcaps as the comfort level would be higher over there. Following midcaps, largecaps would witness buying interest as the valuations have turned attractive. Nifty now trading at a 12-month forward P/E of 17.6x, which is at a 9% discount to its 10-year average of 19.5x."

Yash Gupta- Equity Research Analyst, Angel One   

"First half of 2022 was a very volatile market on the back of domestic as well as international issues. We believe that the short-term negatives have been priced into the market. Still, uncertain events such as the end of the Russia-Ukraine war, inflation in India as well as the USA, and the rate hike cycle by global central banks are the key factors to look for in the second half of 2022. We may see some volatility in the second half of the year. So, we suggest investors to focus more on the largecap stocks but should also have some investments in mid and smallcap good quality companies available at reasonable valuations."  

Pavitraa Shetty, Co-founder & Trainer, Tips2Trades  

"As expected, after an overextended bull market in 2021, the Russia-Ukraine war along with global inflation brought about a much-needed correction in equity markets with small and midcap stocks taking a huge plunge in the first half. Unless, there is a resolution in the Russia-Ukraine crisis and oil price consistently remains below $90, we cannot expect a strong bull market. We expect largecap stocks including sectors such as Reliance Industries along with FMCG, auto and private sector banks to comfortably outperform mid & smallcap stocks as investors opt for risk-averse bets in the coming months."

Rajnath Yadav, Research Analyst, Choice Broking

"In terms of investing across categories such as largecaps and mid & smallcaps, we believe largecaps will be more favorable considering their prevailing valuations and their ability to perform in adverse times. We would also recommend bottoms-down approach for mid & smallcap investing.

Ravi Singh, vice President and head of Research, Share India

"Largecaps are generally expensive to invest and midcaps and smallcaps are more preferable among the investors. But now after the massive correction, the largecap index has also corrected substantially from its high of 7,073 levels made on 17th Jan in 2022 till date as it's trading around 6265 levels. It's an attractive level for value buying to deliver substantial returns on market recovery. Investors must invest 60 percent of their investment in large caps stocks at current levels. As inflation still remains a matter of uncertainty, it's advisable to invest in inflation-hedged assets like commodities and cyclical stocks of FMCG, Power, Energy sectors as they generally gives good returns when prices are higher. However, going forward, an eye on earnings data, interest rate hikes, inflation trend and geopolitical issues would be expected to safeguard the investment."