Saumya Shah - Founder, Tarrakki.com
"Quality mid and small companies offers attractive risk-reward going in the new year - 2020. Many mid and small companies with excellent management, strong balance sheet and good corporate governance are available at steep discount to historical valuation and offers great value from 2-3 years horizon and will be the preferred bet. Currently, Nifty Midcap 150 Price to Earnings (P/E) has corrected to 27 times as compared to 55 in December 2017. Similarly Nifty Small Cap 250 P/E fallen to 62 from 90 in Dec 2017. Companies in organised real estate and infrastructure, healthcare, banking and financial services, especially select NBFCs and banks have been discounted of their fair value due to recent events in the space and offers good opportunity.
Nifty is trading at 28 times P/E vis-a-vis 21 times in Dec 2016. Declining GDP and IIP growth numbers and indicators pointing towards a slowdown in growth can hinder the potential growth of large cap companies. However there is a significant chance of value creation in mid and small caps stocks. Given slower growth and uncertainty around macroeconomic environment, Nifty is likely to trade in the range of 11,900 to 12,400 range. Only a strong investor and economy friendly budget can help Nifty get to 12,500-12,700 levels.
A dichotomy has been created in Large cap vs mid/small cap stocks valuation in last couple of year. Large Cap stocks have become more and more expensive, mid and small caps have been crushed. Given several marco-economic concerns, many investors and fund managers have fled towards making safe bets in large cap companies, mutual fund reclassification implemented by SEBI too resulted in sell-off in the mid and smallcap stocks."