Even with the recent Nifty volatility, it has been a strong year for markets. And as inflation slows, hopes for interest rate cuts worldwide are rising, with many central bankers including Jerome Powell of the Fed and Andrew Bailey of the Bank of England hinting at the possibility. 

But the problem is that when central bankers whisper, the markets shout. Wall Street already expects a rate cut by the Fed in June and two more by the end of 2024. Hopes for a soft landing globally have also increased. 

The inflation monster however, is not yet slain. Jerome Powell said “The economic outlook is uncertain, and progress towards our 2% inflation objective is not guaranteed.”

All major US indices however, hit their record highs and have risen post the Fed meeting. The US tech-heavy Nasdaq 100 index outperformed the Indian benchmark Nifty 50 index in the past year by over 14%. 

The Nasdaq beat Indian indices – which have been no under-performers themselves. Indian indices have been rising sharply in FY24, amid strong economic growth and cooling inflation. The benchmark Nifty 50 is up 28.8% in the past financial year, and may be poised to gain further ahead of elections. But the star index in FY24 has been the Nifty Smallcap 100, with a rise of 65.2%. 

Nifty Smallcap remains the top gainer in FY24 despite falling sharply in the past month

The outperformance comes even after a fall in small-cap stocks over the past month, after SEBI chief Madhabi Puri Buch threw some cold water on smallcap valuations, noting that there is ‘froth’ in small and mid-cap stocks. 

But does the data back up the SEBI chief’s statement? Let’s do a valuation check. 

In this week’s Analyticks,

• FY24 round-up and valuation check: Nifty Smallcap zooms up in FY24
• Screener: Stocks with ‘Buy’ calls from analysts, and high Forecaster estimates for revenue and EPS in Q4FY24

Nifty Smallcap 100 and Nifty Midcap 100 outperform the Nifty 50 in FY24

The three broad market indices Nifty 50, Nifty Midcap 100 and Nifty Smallcap 100 have had a stellar FY24. But the Nifty Smallcap 100 stands out. Share prices of 30 out of 100 companies in the smallcap index at least doubled in FY24, as investors flocked to these stocks. This is despite a volatile final month in this financial year – March saw the Smallcap index underperform the Nifty 50. 

Nifty 50 outperforms small and mid-cap indices in the past month

Nifty 50’s outperformance is due to the market regulator warning retail investors about unsustainable valuations in small-cap stocks. This spooked investors and domestic institutional players, and the smallcap index fell 6.6% in the past month – its highest decline since June 2022. The benchmark Nifty 50 index stayed resilient and fell only marginally by 0.5% as investors chose blue chip stocks over small-caps. 

When we look at the valuation of these three indices, it is clear that the current PE (27.6) of Nifty Smallcap 100 is much higher than its historical averages. But its Q3FY24 YoY net profit growth is also the highest among the three indices. According to Trendlyne’s results dashboard, the revenue and net profit of Nifty Smallcap 100 rose 7.9% and  34% YoY in Q3FY24 respectively. Nifty 50 and Nifty Midcap 100 revenue increased by 10.3% and 11.4% respectively.  

This growth is expected to continue going forward, which means the smallcap index’s Forward PE (21.5) is much lower than its current PE (27.6).

1 Yr Forwrd PE of indices below current PE

The smallcap index’s relatively lower forward PE (21.5) means high expected net profit growth, possibly justifying the current high valuation. There is a ‘but’ here – any miss in earnings can lead to a fall in the index. Also, it is important to note that the forward PE of the Smallcap index is still higher than its historical averages.

On the other hand, Nifty 50 and Nifty Midcap 100 look better valued. Both indices’ current PE is trading below their five and ten year average PE, with an even lower forward PE of 19.4 and 23.4 respectively. 

Let’s look at the top-performing stocks and sectors that drove the indices higher in FY24. 

PSUs, auto and banking & finance sectors dominate in the top gainer lists

Public sector units (PSUs) have had a great year, and it is not surprising to see some of these are emerging as star stocks in the Nifty 50, Nifty Midcap 100 and Nifty Smallcap 100 indices. Sectors that stand out most in these lists are Banking and Finance and Auto. 

Of the top five highest gainers in the Nifty 50, three are from the auto sector – Tata Motors, Bajaj Auto and Hero Motocorp. The auto sector has been on the rise with strong demand in the past year, and the sector is also up 79.5% in FY24, according to Trendlyne’s sector dashboard. The other two top gainers in the list include Coal India and Adani Ports & Special Economic Zone. 

PSUs and auto companies feature among the highest gainers in FY24

Among Nifty Smallcap 100 and Nifty Midcap 100, Banking and Finance sector stocks appear frequently. IRFC, REC, Power Finance Corp, Housing and Urban Development Corp (HUDCO) and BSE are from this sector. 

Other top-performing stocks include Rail Vikas Nigam (RVNL), Bharat Heavy Electricals (BHEL), Suzlon Energy, Mangalore Refinery And Petrochemicals (MRPL) and Cochin Shipyard. 

Screener: Stocks with ‘Buy’ calls from analysts and high Forecaster growth estimates for revenue and EPS in Q4FY24

CE Info Systems leads in Forecaster estimates revenue YoY growth

As we enter the last week of Q4FY24, we take a look at stocks that analysts are most bullish on. This screener shows stocks with a consensus ‘Buy’ rating from analysts, and high Forecaster growth estimates for revenue and EPS in Q4FY24. 

The screener is dominated by stocks from the automobile & auto components, banking & finance, diversified consumer services, software & services and cement & construction sectors. Major stocks that appear in the screener are CE Info Systems, Max Healthcare Institute, RateGain Travel Technologies, Greenply Industries, Manappuram Finance, Bharat Electronics, Home First Finance and Can Fin Homes.

Digital player CE Info Systems has the highest Trendlyne Forecaster estimates for revenue growth at 64.3% YoY for Q4FY24, while Forecaster expects its EPS to rise by 72.9% YoY. Yes Securities believes that the company’s outlook remains strong on the back of rising demand for digital mapping services and navigation solutions. The company has a competitive advantage in the domestic B2B digital mapping space, led by its offerings in maps & data, and platforms in key markets like auto and mobility tech.

Max Healthcare Institute comes in next with Forecaster estimates for revenue and EPS YoY growth of 52.6% and 55% during Q4FY24. Motilal Oswal Financial Services believes that the healthcare facilities company is well-positioned to provide health services on the back of a significant doctor talent pool, a diversified case mix catering to a wide patient base and the availability of land for brownfield expansion.

You can find more screeners here.