Nuvama Wealth Management: Mid and Small Caps’ Outperformance Unlikely to Continue

Nuvama Wealth Management: Mid and Small Caps' Outperformance Unlikely to Continue

VoM News Desk | December 8, 2023 | 11:33 AM IST | Breaking News | Follow on Google News

Nuvama Wealth Management: Mid and Small Caps’ Outperformance Unlikely to Continue Image/Bloomberg

Nuvama Wealth Management: Mid and Small Caps’ Outperformance Unlikely to Continue

Nuvama Wealth Management reported that mid and small-cap segments have significantly outperformed large-caps this year, with a surge of 40-50%. However, the brokerage firm suggests that this outperformance is unlikely to continue due to stretched valuations. The small and mid-cap indices have risen by 47% and 61%, respectively, since March 23, outperforming Nifty 50 by 27% and 41%, respectively. The small-cap valuations, in particular, appear stretched, with a one-year forward P/E of more than 20 times.

While midcaps are also considered expensive, Nuvama believes they should fare relatively better than small-caps. The size and profiles of midcap businesses in India have improved significantly over the past five to seven years. Despite rich valuations, Nuvama points out that historically there have always been pockets of growth, favorable dynamics, and stock performance in these segments.

The brokerage firm notes that the higher market cap range for midcaps increases the likelihood of the first 50-75 midcap stocks being treated as large caps by investors. This, in turn, makes midcap drawdowns less drastic. Nuvama emphasizes that midcaps have a good track record of becoming large caps, with 33-37% of midcaps graduating to become large caps over a 5-10 year period.

Key Points:

• Mid and small-cap indices have surged 40-50% this year, outperforming large caps by over 25%.
• Valuations for small-caps are considered stretched, with a one-year forward P/E of more than 20 times.
• Midcaps, while expensive, are expected to do relatively better than small-caps, given the improved size and profiles of midcap businesses.
• Nuvama suggests that outperformance of mid and small caps versus large caps is highly unlikely going forward.

Nuvama Wealth Management: Mid and Small Caps’ Outperformance Unlikely to Continue: For any Query or rectification of any error.

VoM News Desk

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