Smallcap stocks that more than doubled investor wealth in last one year include Tata Metalliks, Thirumalai Chemicals, Shilpi Cable, GNFC, Kiri Industries, Sudarshan Chemicals, Aptech, Orient Paper, Pricol, Swan Energy and Sarda Energy, among others.
Most multibaggers came from the smallcap category, which most analysts think could see pressure in 2017, as the economy and corporate earnings may take a hit due to demonetisation.
The benchmark equity indices failed to cheer investors in 2016, but nearly 20 stocks more than doubled investor wealth during the same period.
Analysts say investors can look to take some profits off the table and look to diversify into largecap stocks, which are more stable. Midcap stocks, too, carry higher growth potential.
“A lot of value unlocking was seen in smallcap stocks in 2016. Going into 2017, we recommend investors to rebalance their portfolios as many stocks are at stretched valuations and in the unchartered territory,” Mustafa Nadeen, CEO, Epic Research, told ETMarkets.com.
“Investor can look to exit the smallcap stocks that have higher debt on their books. Stocks related to energy and chemical segments can still be in portfolio,” he said
Valuations of smallcap stocks look stretched and are on the higher side compared with the broader market indices such as the Nifty50, where we have seen the PE level come down below 20 from 24.
“Largecap stocks typically have a lower risk compared with the smallcaps stocks. Many of the largecap stocks have undergone significant price corrections in recent times,” Alok Ranjan, Head of Research, Way2Wealth Brokers, told ETMarkets.com.
“It would be a good idea to consider largecap stocks for investment while booking profits in a few smallcap stocks, which appear to have gone a bit overboard in terms of valuation,” he said.
Where should one invest?
Many largecap and midcap stocks, which are poised to benefit in the long run, have seen a correction of more than 20 per cent and investors should use such dips to accumulate them.
Some analysts say the next batch of multibaggers should come from among beaten-down stocks in the largecap and midcap segments, which saw major corrections in Calendar 2016.
Although earnings revival is going to get delayed, once the economy picks up momentum, largecap and midcap stocks should lead the race, experts said. Realty, banking as well as IT stocks do present an opportunity to be added to portfolio after the recent correction.
“After demonetisation, many stocks from real estate, banking and IT sectors present an opportunity to be added to the portfolio. They include many dividend-paying largecap stocks and some midcap stocks,” Nadeen said.
“Investors can book partial profit or exit those smallcap stocks which have high debt on the books. Stocks related to energy and chemicals segment should continue to be part of the portfolio,” he said.
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