Indian equities outperformed other asset classes in Fiscal Year 2018-19, the last trading session of which was on Friday. Gaining 17.30% in FY19, benchmark index Sensex fared the best in four financial years. In FY18 and FY17, Sensex jumped 11.30% and 16.88%, respectively. The 50-share index Nifty rose 14.93% in FY19 and 10.25% in the previous fiscal year.

However, it was a dismal year for smaller stocks as BSE Midcap and Smallcap indices saw a fall of 3.03% and 11.57%, respectively, in FY19 after a stellar run in the previous two fiscals. Steep valuations and slow earnings growth of mid-cap and small-cap stocks led to sharp corrections in these stocks.

Most analysts, however, believe that midcap and smallcap stocks are poised to see a strong rally soon as their valuations have moderated considerably.

“Historical analysis of midcaps reveals that there have never been two consecutive years of negative returns, and the positive returns in the year after negative returns have always exceeded the negative returns. Based on this observation, we expect the return from midcaps to exceed 15% in 2019 as against -15.3% in 2018,” said Elara Securities (India) Pvt. Ltd in a note on 22 March. It believes that with the midcap-largecap premium wiped out, valuations support a midcap recovery.

source: livemint.com