Recap FY24 – Winners and losers in the small cap club

5 Apr 2024 , 11:07 AM

SMALL CAPS ARE STILL THE ALPHA STORY OF FY24

Through most of FY24, the small caps remained the best alpha plays in India. Things changed in the last 2 months after SEBI came down heavily on the aggression of small cap funds. The regulator was worried about the apparent speculative bubble in smaller stocks and wanted to curb before it could do damage to the retail investors. Hence additional special margins (ASM) was accompanied by mandatory 100% upfront margins on a slew of smaller cap stocks. The result was that March 2024, for the first time in many months, saw the small cap index coming under pressure and actually delivering negative returns for the month. It was not just the speculative bubble giving up, but a lot of speculative positions in the F&O space also started winding down. However, the 1-year story is still interesting.

For the fiscal year FY24, Nifty Small-Cap 100 generated returns of 72.51%. The Small Cap 100 index closed the fiscal year FY24 at 15,270 levels, compared with a yearly low of 8,903 levels and a yearly high of 16,692 levels. Compared to the large cap and the mid-cap indices, the small cap index has retreated the most from yearly highs, despite the Nifty and the Sensex closing the year very near to their 52-week highs. A more granular way to look at the performance of these small cap stocks would be across 4 key attributes. We shall look at the extent of outperformance of small cap stocks in FY24 based on momentum, fundamentals, resilience, and swing. For each of these attributes, there is a proxy. The 1-month returns will be a proxy for momentum, 1-year returns represent fundamentals, bounce from 52-week low represents resilience, while proximity to 52-week high represents swing factor.

WHICH WERE THE SMALL CAP STOCKS WITH THE BEST MOMENTUM

Let us start with the momentum story of the Nifty Small-Cap 100 Index using the 1-month returns as the proxy. For the Nifty Small-Cap 100 index as a whole, monthly returns for March 2024 stood at -3.81%. Out of the 100 stocks in the Nifty Small Cap 100 index, 10 stocks were eliminated due to paucity of full data due to various reasons. Out of the remaining 90 stocks, only 24 stocks gave positive returns while 66 small cap stocks gave negative returns in March 2024. The momentum was clearly under stress.

Stock Symbol	Market Price (₹)	1-Month Return	1-Year Return	52-week High (₹)	52-week Low (₹)	Bounce from Low	Proximity to High
TRITURBINE	537.60	15.15%	67.01%	559.00	304.70	76.44%	3.98%
CENTURYTEX	1,630.00	12.38%	152.50%	1,684.90	612.75	166.01%	3.37%
APARINDS	6,940.00	12.01%	206.13%	7,400.00	2,256.10	207.61%	6.63%
ZENSARTECH	603.00	11.48%	127.55%	644.00	259.30	132.55%	6.80%
HINDCOPPER	275.95	9.49%	188.28%	306.85	94.15	193.10%	11.20%
RADICO	1,725.00	8.03%	46.36%	1,885.10	1,068.55	61.43%	9.28%
ANGELONE	3,030.05	6.20%	161.77%	3,896.00	1,122.25	170.00%	28.58%
FINCABLES	999.00	5.88%	23.52%	1,219.00	774.05	29.06%	22.02%
PRAJIND	529.80	5.81%	62.73%	650.50	298.65	77.40%	22.78%
GLENMARK	956.00	5.19%	115.16%	974.00	438.30	118.12%	1.88%

Data Source: NSE

What are the sectors that showed favourable momentum in March 2024. Unlike our previous rounds of analysis, the monthly momentum was not in favour of the PSU stocks. IN fact, there is just 1 PSU stock figuring in top-10 by monthly returns. In terms of the distribution of monthly returns; out of the 90 stocks considered, only 4 stocks delivered double-digit positive momentum in March 2024. This included Triveni Turbine, Century Textiles, Apar Industries and Zensar Technologies.

The list of laggards was much longer in terms of monthly momentum. If you look at the Nifty Small-Cap 100 index on one-month returns for March 2024, most of the laggards were from the financials and the PSU space, where the sell-off was most evident in the second half of March. However, this could be attributed to tax farming and hence a clearer picture will only emerge in the new fiscal year FY25.

HOW SMALL CAPS FARED ON 1-YEAR RETURNS IN FY24

If the momentum story captured the short term pressure on the small caps, the bigger fundamental picture is captured by 1-year returns. For the Nifty Small-Cap 100 index as a whole, annual returns were strong at 72.51%. Out of the 90 stocks in the Nifty Small-Cap 100 index with full data available, 80 stocks gave positive returns and only 10 stocks gave negative returns in the last one year period.

Stock Symbol	Market Price (₹)	1-Month Return	1-Year Return	52-week High (₹)	52-week Low (₹)	Bounce from Low	Proximity to High
HUDCO	186.90	-2.17%	331.45%	226.45	40.40	362.62%	21.16%
MRPL	218.65	-5.04%	327.69%	289.25	49.75	339.50%	32.29%
IRCON	218.45	-1.72%	310.56%	280.85	52.00	320.10%	28.56%
NBCC	119.05	-10.06%	237.30%	176.85	30.95	284.65%	48.55%
SWANENERGY	670.00	-7.14%	223.10%	782.25	192.65	247.78%	16.75%
APARINDS	6,940.00	12.01%	206.13%	7,400.00	2,256.10	207.61%	6.63%
OLECTRA	1,888.00	-3.54%	202.31%	2,221.95	613.00	207.99%	17.69%
NLCINDIA	227.70	2.59%	201.32%	293.75	69.70	226.69%	29.01%
BSOFT	742.15	-3.32%	190.41%	861.85	250.50	196.27%	16.13%
HINDCOPPER	275.95	9.49%	188.28%	306.85	94.15	193.10%	11.20%

Data Source: NSE

What were the fundamental winning stories of FY24? The 1-year story is largely dominated by PSU stocks with 6 out of the top 10 gainers on 1-year returns belonging to the PSU theme. The PSU names include HUDCO, MRPL, IRCON, NBCC, NLC India and Hindustan Copper. Based on annual returns, there were 34 out of the 90 Nifty-Small-Cap stocks that generated more than 100% returns, while 59 out of the 90 small cap index companies generated more than 50%. A total of 76 out of the 90 companies yielded more than 20% returns, so even if you had selected a small-cap index stock at random, there was an 84% probability that you would still be in the best performing asset class.

What is the story of the laggards in the Nifty Small-Cap 100 index on one-year returns? These are largely stock specific stories that you find here, which makes the 1-year list more reliable in terms of bottom-up stories. Indiamart has been under pressure for some time as valuations moderated. In the case of others like Navin Fluorine, IIFL Finance and Aavas Financiers, the correction was more news driven.

RESILIENCE STORY OF SMALL CAPS IN FY24

We look at resilience in terms of the bounce from the lows of FY24. It gives a good approximation of resilience. For the Nifty Small-Cap 100 index as a whole, the bounce from the low of the year was a full 71.51%, despite the late correction in March 2024. Out of the 90 stocks evaluated in the Nifty Small-Cap 100 index, an amazing 37 stocks bounced more than 100% from the lows (doubled from lows), while 68 stocks bounced more than 50% from the lows and a total of 80 stocks showed a bounce of at least 20% from the lows of FY24. This is despite the late correction in March 2024.

Stock Symbol	Market Price (₹)	1-Month Return	1-Year Return	52-week High (₹)	52-week Low (₹)	Bounce from Low	Proximity to High
HUDCO	186.90	-2.17%	331.45%	226.45	40.40	362.62%	21.16%
MRPL	218.65	-5.04%	327.69%	289.25	49.75	339.50%	32.29%
COCHINSHIP	871.50	2.06%	89.93%	945.00	207.00	321.01%	8.43%
IRCON	218.45	-1.72%	310.56%	280.85	52.00	320.10%	28.56%
NBCC	119.05	-10.06%	237.30%	176.85	30.95	284.65%	48.55%
SWANENERGY	670.00	-7.14%	223.10%	782.25	192.65	247.78%	16.75%
NLCINDIA	227.70	2.59%	201.32%	293.75	69.70	226.69%	29.01%
OLECTRA	1,888.00	-3.54%	202.31%	2,221.95	613.00	207.99%	17.69%
APARINDS	6,940.00	12.01%	206.13%	7,400.00	2,256.10	207.61%	6.63%
J&KBANK	134.25	-2.44%	178.13%	152.50	44.55	201.35%	13.59%

Data Source: NSE

Once again, no prizes for guessing. A total of 7 out of the top 10 stocks in terms of resilience from the lows were PSU stocks and they included HUDCO, MRPL, Cochin Shipyards, IRCON, NBCC, NCL India and J&K Bank. The last is owned by the government of Jammu & Kashmir. This has been the consistent story where many of the small and mid-sized PSU stocks displayed the best traction in the space. The non-PSU stocks in the top-10 list included Swan Energy, Olectra Greentech and Apar Industries. They are all essentially bottom-up stories.

Let us also focus on the laggards, or the stock that struggled to bounce from the lows of the year in the small-cap index. There were a total 6 stocks out of 90 stocks that bounced less than 10% from the lows, hinting that there were closer to their lows during the year. A total of 10 stocks bounced less than 20% from the lows. Other than that, most of the other small cap stocks displayed significant resilience in bouncing from the lows of the year.

SMALL CAPS STOCKS – SWING STORY OF FY24

Let us finally turn to the top ranked swing stocks for the year, wherein we use the proximity to the 52-week high. The closer the stock is to the 52-week high, the higher is the swing factor working in their favour. The lower the swing measure, the better. The Nifty Small-Cap 100 index itself is about 9.31% short of the 52-week high, which was largely a fallout of the correction in March 2024, which took its toll on small cap stocks. Out of the 90 stocks evaluated in the Nifty Small-Cap 100 index, only 3 stocks are less than 5% away from their 52-week highs, while a total of 13 stocks are less than 10% away from their 52-week high levels. Surprisingly, a total of 51 out of 90 stocks are more than 20% off the yearly highs.

Stock Symbol	Market Price (₹)	1-Month Return	1-Year Return	52-week High (₹)	52-week Low (₹)	Bounce from Low	Proximity to High
GLENMARK	956.00	5.19%	115.16%	974.00	438.30	118.12%	1.88%
CENTURYTEX	1,630.00	12.38%	152.50%	1,684.90	612.75	166.01%	3.37%
TRITURBINE	537.60	15.15%	67.01%	559.00	304.70	76.44%	3.98%
GESHIP	997.35	4.99%	53.98%	1,052.00	610.45	63.38%	5.48%
BLUESTARCO	1,277.00	-1.42%	-7.25%	1,359.00	672.53	89.88%	6.42%
APARINDS	6,940.00	12.01%	206.13%	7,400.00	2,256.10	207.61%	6.63%
ZENSARTECH	603.00	11.48%	127.55%	644.00	259.30	132.55%	6.80%
REDINGTON	207.55	2.53%	23.16%	221.80	136.20	52.39%	6.87%
AARTIIND	664.00	2.63%	30.21%	712.00	438.00	51.60%	7.23%
GRAPHITE	602.55	2.22%	131.96%	652.35	251.70	139.39%	8.26%

Data Source: NSE

What are the sectors that are showing the best swing in terms of proximity to their 52-week highs. These were largely stock specific bottom-up stories. Glenmark has been closest to the high after it sold its API business to Nirma. Century saw good traction from its realty business, while GE Shipping got closer to the highs due to the ongoing Red Sea crisis boosting the freight rates. Stories like Redington gained from the aggressive plans that Apple has for the mobile phone market in India, where Redington will be a big beneficiary.

What is the story of the laggards in the Nifty in terms of proximity to the 52-week highs. The story, once again, reads like a very familiar script. At the bottom of the heap, you have a mix of financials and select PSU stocks that saw a good deal of profit book after the hefty profits of the last few years. It was time to do some profit taking and combine with tax farming.

WHICH WERE THE CONVICTION SMALL CAP PLAYS IN FY24?

One way to check the conviction of outperformance, is to look at the stock that have outperformed on multiple parameters. Here we look at the common factors across momentum, fundamentals, resilience, and swing in small caps Here are quick takeaways.

• There seems to be a dichotomy emerging in the small cap conviction plays with one set of stocks dominating on momentum and proximity to highs and another set of stocks dominating on 1-year returns and bounce from the lows, as a measure of resilience.
• PSU stocks have scored highly 1-year returns and on resilience from the lows of the year. However, stock specific stories like Glenmark, Century Textiles, Triveni Turbine and Apar Industries have dominated on momentum and swing factor.

As we read the data, there are two sets of winners emerging in FY24 in the small cap space. This dichotomy could be more because of the sharp correction that we saw in select stocks in the month of March. Does such a view help in identifying future winners? A lot will depend on whether these two sets of stocks converge or diverge in FY25. The moral of the story is that, despite the March sell-off, small caps were the king of Alpha in FY24.