After two years of underperformance compared to benchmark indices, the broader markets are going through a trend reversal in 2020. While the Sensex and Nifty were in the red, down 0.8 and 1.3 percent, respectively, on a year-to-date basis, the midcap and smallcap indices outperformed. The BSE Midcap index rose 6 percent in 2020 till date, while the BSE Smallcap index surged 8 percent during the period.

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Analysts have also said that the broader markets are looking attractive and could well outperform largecaps in 2020. They also noted that the midcaps and smallcaps generally tend to do well in a growing economy, indicating a recovery in economic growth as well.

2019 witnessed a lot of polarisation with only major largecap contributing to index gains, however, investors are now moving beyond the top stocks.

The decline started after the IL&FS crisis, which triggered a massive sell-off in the market and led to investors moving funds away from the broader markets to safe largecap stocks. After almost 18 months of being shadowed by the crisis, the midcaps have started showing some signs of recovery.

69 stocks in the BSE Midcap index have given positive returns, while only 32 have been in the red for 2020. Stocks like Ajanta Pharma, AU Small Finance Bank, Alkem Labs, Honeywell Automation, Bayer CropScience, Tata Global Beverages, M&M Financial, Info Edge, and Supreme Industries rose between 20 percent and 40 percent this year.

Losers included Edelweiss Financial Services, Canara Bank, Bharat Electronics, Crisil, Union Bank of India, and Max Financial Services, down over 10 percent each.

In the smallcap space, Unitech rallied 127 percent, whereas Simplex Infra, Cerebra Integrated, Spencers Retail, Indostar Capital, GMM Pfaudler, and Welspun Corp rallied over 50 percent each. However, Suven Life Sciences, Reliance Defence, Reliance Home Finance, Gayatri Projects, Reliance Power, and Vinati Organics lost between 45 percent and 88 percent in 2020.

Brokerage firm Sharekhan retains a constructive view on equities based on expectations of a gradual recovery in the economy during 2020 along with healthy earnings. From the midcap space, it prefers Gujarat Gas, Mahanagar Gas, Bata India, Sudarshan Chemicals and Spandana Sphoorty.

IIFL Securities believes the year 2020 will see select largecaps and midcaps outperforming the Nifty. It expects consumption to pick up in the latter half of 2020, aided by government-led push, improvement in household financial savings, pick-up in agricultural growth, etc. IIFL added that select sectors like auto, telecom, and private banking are well-positioned to deliver strong earnings growth. Its top midcap picks include Cummins India, Gujarat Gas, IPCA Labs, Sudarshan Chemicals, and Varun Beverages.

Meanwhile, Prabhudas Lilladher picks L&T Infotech, Jubilant FoodWorks, IRCTC, Crompton Greaves, and PVR in the midcap space and Kalpatru Power, VIP Industries, and KNR Construction in the smallcap segment.

First Published:Feb 10, 2020 2:48 PM IST