Are mid-, small-caps looking overheated? Elara Securities lists these cheap stocks

The broader markets have delivered superlative returns to investors in the ongoing calendar year till September 10. While the BSE MidCap and BSE SmallCap indices have advanced 29 per cent and 32 per cent YTD, respectively, the benchmark equity index BSE Sensex has gained 9.4 per cent. Brokerage Elara Securities believes the current momentum will be sustained in the broader markets.

Elara Securities in a report said, “Mid-cap and small-cap valuations relative to the Nifty are still well below the previous highs and have room to move up if the macro factors continue to support.”

The brokerage added that though the 2023 outperformance may likely indicate an overheating in mid- and small-cap stocks and an approximation to the peak performance, this recent large outperformance is only a swing-back from the extreme underperformance seen through 2018-2022.

“In the past five years, the Nifty MidCap Index has outperformed the Nifty 50 Index by around 5 percentage points and the Nifty SmallCap Index has underperformed by 2 percentage points, annualised. Thus, there is still room to catch up to the long-term outperformance rate, especially for small-cap stocks,” it said adding given the multiple macro tailwinds for India, the earnings upgrade cycle has a long runway.

Top gainers of 2023

With a rally of 3,529 per cent, shares of Integrated Industries emerged as the top gainer in the broader markets in 2023. It was followed by Remedium Lifecare (up 2,766 per cent), Prime Industries (up 2,098 per cent) and Eyantra Ventures (up 1,912 per cent).

Pulsar International, Taylormade Renewables, Jhaveri Credits & Capital, K&R Rail Engineering, Kintech Renewables, Sheetal Diamonds, Classic Filaments, Jai Balaji Industries and Shukra Pharmaceuticals also soared over 500 per cent during the same period.

Top cheapest names in broader markets

If you are looking for the cheapest names in the broader space, Elara Securities lists stocks such as Rajesh Exports, Steel Authority of India, Biocon, Samvardhana Motherson International, NHPC, Patanjali Foods, Bharat Heavy Electricals Industrials, Trident India, Zee Entertainment Enterprises, Laurus Labs, Aarti Industries, Gujarat Gas, Ramco Cements, Deepak Nitrite, Aurobindo Pharma, Lupin, Apollo Tyres, JK Cement, Ipca Laboratories and Gujarat Fluorochemicals in the Nifty Midcap space on PEG basis.

On the other hand, Sterling and Wilson, Shyam Metalics & Energy, Graphite India, HEG, Chemplast Sanmar, Jubilant Pharmova, Sharda Cropchem, Archean Chemical, Sterlite Technologies, KEC International, Birla Corp, India Cements, Vardhman Textiles, Quess Corp and Piramal Pharma look among cheapest names to Elara Securities in Nifty Smallcap index on PEG basis.

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