*http://www.thehindubusinessline.com/2010/06/20/stories/2010062051550100.htm * ** *Now, action shifts to small-cap stocks *
** ** ** *BSE Small-cap index outperformed the Sensex with a 6% gain. * Rajalakshmi Sivam BL Research Bureau Even as the Sensex has gone nowhere in the last six months, there has been plenty of action in one segment of the market – the small-cap stocks. Consider this. Over 100 of the BSE Small-cap index constituents have managed a 30-per cent-plus gain till date in 2010 and five of them have doubled prices. The BSE Small-cap index has outperformed the Sensex (flat) with a 6-per cent gain on a year-to-date basis. Yet, thanks to a strong rebound in earnings performance, small-cap stocks have turned cheaper in this period, with the PE for the BSE Small-cap index falling from 18 to 15 times in six months. Small-cap stocks have certainly beaten their large-cap peers in terms of stock price returns between end-December 2009 and now. Some of the impressive gainers are Hitachi Home Appliances, TTK Prestige, Hanung Toys, IFB Industries, Zydus Wellness, Piramal Life Sciences and Rallis India. The price appreciation in all of the small-cap stocks can't be ignored as merely speculative as these companies have managed strong profit growth too. Not surprising Mr Manish Sonthalia, Fund Manager, PMS, Motilal Oswal Asset Management Co, points out that the recent rebound in small-caps isn't all that surprising given the extent of damage they suffered in 2008. “When markets crashed in 2008, small-cap counters lost almost 80-90 per cent of their value, much more than the value erosion seen in the Sensex. So, obviously, when the appreciation has happened from such low levels, it will look very high in percentage terms though, on an absolute basis, it is not much”. While many small-cap stocks are still well below their 2008 highs, many Sensex stocks (Hero Honda Motors, HDFC Bank, TCS and ITC) have already soared past their 2008 highs. Profits double Net profits for companies in the BSE Small-cap basket more than doubled in the March- 2010 quarter against the 20 per cent growth managed by Sensex companies. At the operating level profits were up 43 per cent, while sales grew 26 per cent. Profit growth for the smaller companies was helped by the low base of the previous year and relief on interest costs. In the crisis-ridden March quarter of 2009, interest costs took away 51 per cent of the profits (before interest and tax) for small-cap companies; this fell to 32 per cent in the recent March-10 quarter. Re-rating of sectors Despite the BSE Small-cap index seeing its PE dip in six months, some sectors have enjoyed a strong re-rating. From a price-earning multiple of eight-nine times, consumer durable stocks have been re-rated to 18-19 times. Since January, TTK Prestige has more than doubled in price, with its valuation rising to a multiple of 19 times as against 10-11 times earlier. Similar is the case with Hitachi Home Appliances and Hawkins Cookers (PE at 17 times currently), up from 8 times in the year beginning. The appetite for consumer-oriented stocks is rising on the back of the solid growth numbers, says Mr Sonthalia. Fertiliser stocks such as Chambal Fertilisers, Zuari Industries and GNFC too have led the pack of gainers helped by a more favourable policy regime -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
