Bank Nifty super-surge lifts pall of gloom over Dalal Street
The warning by Shaktikanta Das, the distinguished Governor of the RBI, of an imminent crash in the stock markets had sent a chill down the spine of the punters of Dalal Street.
“Shakti Bhai ne solid warning diya hai. Ab stocks bech ke bhaag ne mein hi samajdhari hai,” Mukeshbhai had commented, while the other punters had nodded in agreement.
The Governor’s logic appeared flawless.
“There is so much liquidity in the system, in the global economy, that’s why the stock market is very buoyant and it is definitely disconnected with the real economy,” the authority said.
“There will definitely be a correction but we can’t say when,” he added in a grim tone.
However, some intellectuals were unhappy at the plain-speak by the Governor and fumed at him.
“I respect RBI gov but his forward-looking statement is absolutely rubbish & uncalled for. His statement may precipitate a crisis which is not good for the common investor. He should not have shown his immaturity by such a statement. Every now & then the market is correcting & again bouncing back which shows the market is in sync with the economy. Valuation of the market had fallen to so low after the lockdown without any reason which now is gradually regaining,” an intellectual named Kamath Ramesh stated.
Thankfully, the stock markets are in no mood to listen to doomsday talk by theoreticians.
Yesterday, the Bank Nifty (which comprises of the choicest private and PSU Banking stocks) surged a mammoth 923 points (3.91%), taking everyone by surprise.
The Nifty couldn’t match the energetic pace of the Bank Nifty though it also surged 88 cheerful points and came close to the 11700 point.
The 12000 point mark is within touching distance and should be effortlessly breached within the next few days/ weeks.
Growth is returning, small-cap stocks will give hefty returns: Ridham Desai, Morgan Stanley
Ridham Desai‘s USP is that he has a deep understanding of complex macro-economic issues as well as intimate knowledge about the fundamentals of individual stocks.
This has made him and his distinguished colleagues favourites amongst the populace at Dalal Street.
“With monetary aggregates normalising and significant policy action underway with a corporate tax cut last September, we think growth is set to turn. Smaller firms are likely to benefit more due to their operating and financial leverage. Small, midcap valuations are looking attractive relative to gross domestic product (GDP) and money supply, setting the stage for outperformance versus large-cap stocks in the coming months,” Ridham and Sheela Rathi have opined in their latest report.
“Once the impact of COVID-19 ebbs, the cumulative policy response plus monetary system normalisation should once again bring back growth, in our view. This would benefit the broader market more than large companies since smaller companies have greater operating and financial leverage,” the duo has rightly observed.
Valuations are attractive
Ridham and Sheela have also opined that the valuations of small-cap stocks are attractive and worthy of a buy.
“Valuations of SMID stocks are looking more attractive, setting them up for a re-rating if the growth outlook improves as we think it will. Relative price-to-book (P/B) is down to 0.75, though ideally this would be lower than its long term average. The considerable profit damage inflicted over the past two years has also depressed book values (compared to larger companies) distorting multiples,” it is stated.
Top 22 small-cap stocks to buy now
According to the report, there are 22 small-cap stocks which we can trust with our money.
These stocks are the following:
|Stocks||YTD Gain %|
|Aditya Birla Capital||-38%|
|Amara Raja Batteries||2%|
|Gujarat State Petronet||-7%|
|Jindal Steel & Power||39.40%|
|Mahindra & Mahindra Financial Services||-31%|
|Multi Commodity Exchange of India||46%|
|PNB Housing Finance||35%|
|Prestige Estates Projects||25%|
|Shriram City Union Finance||30%|
|Shriram Transport Finance Co||40%|
|Tata Power Co||9%|
No doubt, the choice of stocks is impeccable and fail-safe.
What about the stocks in Saurabh Mukherjea’s portfolio of Little Champs
It is worth recalling that Saurabh Mukherjea has, in an act of immense generosity, laid bare the names of the 15 small-cap stocks in his famous ‘Little Champs Portfolio‘ (see Saurabh Mukherjea Recommends 4 Stocks And Advises On How To Deal With Stocks Quoting At Extravagant P/E ratios).
Each stock has been carefully screened for quality and growth, subjected to rigorous forensic accounting screening, and thereafter given the clean chit.
We can pick from some or all of these stocks whilst building our own portfolio!