MUMBAI: After rewarding investors with a hefty returns over the past one year, fund managers are still upbeat over the small and mid cap segment as they feel that many stocks in the growth-oriented sectors are still trading at a significant discount to their historic peak valuations.
Data sourced from Value Research Online shows that small and mid cap schemes offered by domestic mutual funds have generated an average annual return of 76.80 per cent, highest compared to other mutual fund schemes.
“From the January 2008 markets peak, the large cap index have gained around 28 per cent while the mid and small cap index are still trading at a discount of 8 per cent and 20 per cent respectively.
During the earlier market peak, the small and mid cap were trading at 25 times their one year forward earnings,” said S Krishnakumar, head of equity at Sundaram Mutual Fund.
“However, their valuations are now less than 12 times of their one year forward earnings. Additionally, the valuations of small and mid cap stocks are 30 per cent lower than their larger counterparts,”said Mr Krishnakumar.
While Reliance Small Cap Fund has given an annual return of 117.82 per cent, HSBC Midcap Equity Fund, ICICI Prudential Midcap Fund and Birla Sun Life Pure Value Fund have generated a return of 114.77 per cent, 104.58 per cent and 106.65 per cent respectively over the past one year.
“We are quite positive on the small and mid cap segment. While there are still opportunities left in the segment, one has to be little careful while choosing the stocks at this point of time. We have adopted a bottom up investment strategy in this segment,” said Sunil Singhania, chief investment officer (CEO), equity investments at Reliance Mutual Fund.
“The small and mid cap stocks have staged a remarkable recovery in the past one year as India’s macro-economic factors showed signs of stability and sentiments reversed after the new government assumed office. However, their earnings are yet to justify their sharp valuations. So patient investors with long term outlook could consider investing in these schemes,” said Gopal Agrawal, head of equity at Mirae Asset Global.
