Smallcap stocks have been under pressure in the last 1 year amid lingering concerns of corporate governance, liquidity crunch in the economy and fears of a growth slowdown.
The BSE Smallcap index has fallen over 16 percent in the last 1 year as compared to a 4 percent rise in the BSE Sensex. Of 851 stocks in the BSE Smallcap index, 79 percent or 673 stocks have delivered negative returns in the last 1 year, whereas, only 178 stocks gained during this time.
Out of the 178 stocks trading in the green, 7 stocks have doubled investor wealth in the last 1 year. These include Balrampur Chini, IOL Chemicals and Pharma, Dhampur Sugar Mills, Vinati Organics, Capri Global Capital, Dalmia Bharat Sugar, and ION Exchange.
Dhampur Sugar Mills was the best smallcap performer in the last 1 year, up 134.6 percent. The stock rose from Rs 74 in July last year to Rs 173 currently. Two other sugar stocks also gained over 100 percent in this time. Balrampur Chini advanced from Rs 63 in July 2018 to Rs 147 now, up 132 percent. Dalmia Bharat Sugar also rose 101 percent.
The gain in sugar stocks is a result of government's shift in focus towards higher ethanol blending and increase in procurement prices, ethanol business has proved to be a boon for the sugar producers, said Edelweiss Securities.
IOL Chemicals and Pharma surged 120 percent in the last 1 year, up from Rs 92 in 2018 to Rs 203 in 2019. A 1 lakh investment in this stock in July last year would have more than doubled to Rs 2.2 lakh today.
Vinati organics, a specialty chemicals company, rose 118 percent in the last 1 year. According to a Crisil report, capital expenditure of specialty chemical manufacturers is expected to jump 70 percent to almost Rs 13,000 crore during fiscal 2018-20, which may result in further gains in the stock.
Capri Global Capital rallied 116 percent in the last 1 year, from Rs 75 per share in 2018 to Rs 162 currently. ION exchange also gained 104 percent in this time.
Meanwhile, small-cap losers in the last 1 year include Cox & Kings, McLeod Russel, Punj Leod, Mercator, Eros International, Reliance Communications, Jet Airways, and Arvind, all down over 85 percent in the last 1 year mostly on loan defaults and rating downgrades.
Going ahead, analysts expect the monetary easing and expected fiscally expansionary policies with a benign global backdrop (low rates, low oil prices) to drive a recovery over the next 12 months. According to them, individual stocks are beginning to offer reasonable risk-reward and investors must look at value stocks which are growing at a reasonable price.
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