The recent surge in the broader market has sparked regulatory scrutiny, with investment strategies in small-cap and mid-cap stocks becoming a focal point amid actions by Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI).
This was also a key point of discussion at the Mint India Investment Summit 2024, held on Saturday, where experts weighed in on the complexities and opportunities within the Indian market, and these specific segments.
Nilesh Shah, managing director, Kotak Mahindra Asset Management, highlighted the diverse nature of the stock market at the Mint India Investment Summit 2024, comparing it to the juxtaposition of Mumbai’s Antilla and Dharavi, where the spectrum ranges from the affluent to the modest. He stressed the crucial role of investors in discerning and investing in valuable companies at fair or advantageous prices.
Shah also noted that within the small and mid-cap sector, share prices of certain micro-cap companies have exceeded their fair value. However, he believes the market is optimistically priced, with the much anticipated interest rate cuts by the US Federal Reserve, double digit earnings growth and solid fund flows from local and global investors factored in.
In fiscal year 2024 (FY24), Nifty 50 and Sensex notched up their highest gains in three years, rising by 28% and 25% respectively. This was in stark contrast to the even more impressive performances of Nifty Midcap 100 and Nifty Smallcap 250, which surged by 64% and 68% during the same period.
Vishal Kapoor of Bandhan AMC pointed out the promising prospects for strategic long-term investment in midcaps and smallcaps, despite the inherent risks.
Samarth Jagnani, head, Global Capital Markets, Morgan Stanley India & South-East Asia, highlighted that, “India is already on the radar of all the global funds from the capital allocation perspective.”
“The influx of capital into India is continuously rising. India serves as a market that facilitates exits for investors. For instance, last year saw approximately $15 billion worth of block deals, and in the first quarter of this year alone, we’ve already witnessed $10 billion in secondary sell-downs. Enhanced exit opportunities in India enable investors to make better investment decisions, creating a virtuous cycle of investment and returns,” said Jagnani.
If the macro environment in India continues to remain stable for the next one year, “India will no longer be an EM (emerging market) asset class, but become an asset class of its own,” said Jagnani.
Samarth also emphasized a crucial point: India is poised to emerge as an independent market distinct from just being categorized under Asia or emerging markets. This shift is primarily driven by factors such as growth potential, demographics, and the government’s policy reforms.
Besides the stellar surge in Indian equities, FY24 also proved to be a remarkable year for initial public offerings (IPOs), with a record-breaking 75 issues launched—the highest in two years.
Looking ahead, Subhrajit Roy, managing director and head of Global Capital Markets at Bank of America in India, predicts that IPOs could generate $15-20 billion in the coming year. He highlighted the diverse range of IPOs across sectors, offering a more varied set of investment opportunities than the previous year’s more monolithic focus.
The confidence of investors has been buoyed by recent block trades, according to Roy, leading to a notable uptick in buyout activities.
“We are seeing tectonic shifts in the Indian capital markets in terms of fund-raising activity,” Bhavesh Shah, managing director, Equirus Capital, weighed in, adding that he expects a surge in both capital markets and private equity activity.
Shah said that he wouldn’t be surprised if the amount of money raised through IPOs this year doubled compared to last year.
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