Turnaround story: 40 smallcaps that lost over 30% in FY23, turn multibaggers in FY24

MUMBAI: Undoubtedly, the current financial year has been a remarkable one for the little ninjas of Dalal Streetsmallcap stocks – as we saw as many as 181 of them turning multibaggers.

What’s worth noting is that more than 100 of these smallcap stocks went through a bad phase in the preceding financial year. So, FY24 became a turnaround year for many of them.

Among these, ETMarkets filtered out stocks that corrected more than 30% in FY23 but turned multibaggers in FY24, and found 40 such smallcaps.

Favourable risk-reward, coupled with strong earnings growth and robust domestic macroeconomic environment played in favour of the smallcaps and this triggered the stellar rally in the smallcap universe.

So far in FY24, the S&P BSE Smallcap index has rallied a whopping 59%, after correcting over 4% in FY23. In comparison, benchmark Sensex has gained 23.5% in FY24, compared to just 0.7% gain in FY23.

Pharmaceutical company Kopran Ltd was the biggest loser in FY23, shedding 61%, but the stock rebounded sharply in FY24 and gave 135% returns to investors. Alok Industries, owned by Reliance Industries, is another turnaround story in the smallcap universe. The stock, which fell more than 54% in FY23, rallied 147% in the current financial year. This rally was partly on the back of the fund infusion by the parent. RIL infused Rs 3,300 crore capital in Alok Industries in January. Several smallcap real estate companies are part of FY24 multibaggers list, as higher investments by the government on infrastructure and strong demand for premium residential spaces bolstered the outlook for the sector.

Shares of Sobha Ltd, Puravankara Ltd, and Indiabulls Real Estate are the smallcap stocks that gave multibagger returns of 126-195% in FY24. In FY23, these stocks corrected 32-53% in FY23.

Besides Kopran, there were many stocks in the pharmaceutical stocks which rebounded sharply this year after the underperformance last year.

SMS Pharmaceuticals, Wockhardt, and Suven Life Sciences stocks corrected 37-43% in FY23, but they more than doubled in value in the current financial year, giving returns of 105-210%.

Will History repeat in FY25?

While equity bulls partied hard in most of FY24, the Securities and Exchange Board India turned a party spoiler towards the end. The regulator raised concerns over the skyrocketing valuations and also directed mutual funds to take measures to check the unprecedented inflows into midcap and smallcap funds.

This has dampened the euphoria to an extent, and market experts believe that the returns in smallcap stocks will moderate in FY25.

“Given the sharp rally in the broader markets and frothy valuations in a few pockets, our current stance is conservative,” said Poonam Tandon, chief investment officer at IndiaFirst Life.

“Our broad approach continues to remain stock-specific with a preference for quality companies with the ability to maintain margins backed by a healthy balance sheet that can navigate this turbulent macro environment,” she said.

Kshitiz Mahajan of Complete Circle Wealth recommends investors, who are looking to allocate funds in small and midcap, to align their long-term goals with these categories of funds.

“It’s crucial to diversify across various asset classes and not allocate based solely on past returns. Industry flows in small and midcap stocks may also come through other categories,” he said.

(Data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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