Wealth creators: Rs 10,000 in these small-cap stocks climbed up to Rs 7 lakh in just 6 months. Own any?

Select small-cap stocks on Dalal Street have created massive wealth for investors during the first six months of 2024, when the broader markets outpaced the benchmark equity index BSE Sensex.

Data showed that Sri Adhikari Brothers Television Network has gained the most, 7,502%, to Rs 245.55 on a year-to-date basis till June 28. The scrip traded at Rs 3.23 on December 29, 2023. The return showed that an investment of Rs 10,000 in Sri Adhikari Brothers Television Network has turned into more than Rs 7.50 lakh at present.

Meanwhile, the domestic equity markets registered strong gains, hitting record highs. The BSE Sensex gained nearly 9% YTD, while the BSE MidCap and SmallCap indices advanced 25% and 22%, respectively, during the same period.

With a surge of 814%, Royal India Corporation stood next on the list. The scrip increased to Rs 36.38 on June 28 from Rs 3.98 on December 29, 2023. Tinna Trade, Marsons, Diamond Power Infrastructure, and Healthy Life Agritec also soared more than 700% during the same period.

Sharing his advice with investors, Sunil Damania, Chief Investment Officer, Mojo PMS, said, “Given the current high valuations in the market, careful stock selection is crucial. There is a bubble in the mid- and small-cap segments. We recommend allocating 80% of investments to large caps and only 20% to mid- and small caps. Instead of following momentum stocks, we suggest investing in quality stocks. While momentum stocks performed well in the first half, the second half is expected to favour quality stocks, reducing downside risk if the market corrects.”

Eraaya Lifespaces (up 602%), Spright Agro (up 575%), Bondada Engineering (up 568%), Ceenik Exports (India) (up 553%), Integra Switchgear (up 509%), and Aerpace Industries (up 506%) stood among the other major gainers of 2024 till date.

What can we expect from the market in the second half of 2024? Damania said, “Historically, the Indian stock market has shown a tendency to perform better in the second half of the year compared to the first. Over the past decade, the average return in the first half has been 5%, while the second half has yielded 9%. However, this pattern shifts during general election years, as evidenced by the data from 2014 and 2019. In 2014, first-half returns were 20%, while second-half returns were 8%. In 2019, the returns were 9% in the first half and 5% in the second half.”

“Given the historical trends during election years and the current high valuations in the Indian equity market, it is advisable to anticipate subdued returns in the second half. Although we do not expect negative returns, increased volatility and marginal gains are likely by the end of 2024,” Damania said. Going ahead, there are expectations that the Union Budget and quarterly results for the June quarter will give direction to the market.

Vinod Nair, Head of Research, Geojit Financial Services, said, “We expect the broad market's positive earnings growth to persist in the coming quarter, with forecasts projecting between 12% and 15% for FY2025. Q1 earnings growth is expected to be slightly better than the FY25 estimate, supported by strong monthly high-frequency economic data. The RBI has also indicated that Q1 GDP growth is likely to be robust, at 7.3%. The strong performance of Q4 FY24 is expected to carry into Q1 FY25, with Nifty500 earnings growth at 18% in Q4 likely to be sustained with a further positive bias in Q1.”

Nair added that expectations are high from the Union Budget, but there is a risk that the government may not be able to address all possibilities within the budget. It is likely that some measures will extend beyond the budget into subsequent quarters. Optimism centres on growth initiatives being a key theme of government policy, driven by increased spending on rural markets and infrastructure and the expansion of industrial norms like PLI schemes to other sectors.

“A direct tax benefit is also expected for middle-class tax players. Given strong tax collection and income from the RBI, the fiscal deficit target is likely to be further cut marginally. Importantly, the government is also expected to find a balance between growth and populist measures to provide leeway to rural areas and to the public at the bottom of the pyramid,” Nair said.