Despite Recent Downturn, Small and Mid Caps Outperform Large Caps in Last 12 Months

Despite a recent downturn, with small caps yielding no returns in the past 90 days and mid caps experiencing corrections in the recent past, the past 12-month performance still eclipses large caps with returns exceeding 50 per cent, broking firm, Anand Rathi Share and Stock Brokers said.

“In the face of mounting skepticism from market experts, our outlook for mid and small cap indices remains optimistic,” the brokerage said.

The exceptional performance of mid and small caps over large caps has historical precedence, particularly evident from 2014 to 2017. The remarkable gains in the past 12-months can be attributed to a rebound from the significant underperformance experienced in 2018-19, and once more in 2022, marking the recent surge as a catch-up rather than an anomaly, the brokerage said.

The upswing in mid and small caps is grounded in substantial earnings growth, with CAGR of 30 per cent and 37 per cent since 2018 versus 16 per cent for large caps.

“Despite a noticeable decrease in risk-free interest rate, which typically warrant higher equity multiples, we do not find froth in valuations,” the brokerage said.

On the possibility of a market correction, the brokerage said, “While relatively small short-term market corrections are possible, we do not see reasons for significant market correction”.

Both FII and MF flows to equities remain strong. Certain actions and statements by experts seem to have negatively impacted market sentiments slightly, it added.