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Mint
10-06-2025
- Business
- Mint
Indian Market Outlook: HSBC MF stays bullish on India amid growth revival and fair valuations
Indian equity markets continued their upward momentum in May 2025, driven by solid domestic and foreign investor flows, according to HSBC Mutual Fund. In its latest monthly commentary, HSBC MF said the BSE Sensex and NSE Nifty gained 1.7 percent and 1.9 percent, respectively, during the month, reflecting a steady rise in frontline indices. Broader markets displayed even stronger performance, HSBC MF noted. The NSE Midcap Index surged 6.0 percent, while the BSE Smallcap Index posted an impressive 10.6 percent gain. Sectorally, Capital Goods emerged as the top performer, followed by Realty, Metals, IT, and Autos. HSBC MF said Power and Oil & Gas tracked in line with the Nifty, while Healthcare and Banking stocks also delivered gains but lagged behind. FMCG, however, ended in negative territory. On the earnings front, HSBC MF highlighted a marginal downward revision of 1 percent in the Nifty consensus EPS estimate for calendar year 2026 during May. Despite this, the market rally pushed the Nifty's one-year forward price-to-earnings (PE) multiple to 20.4x. HSBC MF explained that this valuation is now in line with the index's 5-year average and represents about a 10 percent premium to the 10-year average. It added that midcap and smallcap valuations have also recovered in tandem with their recent price rallies. Looking ahead to June and beyond, HSBC MF expressed optimism that India's growth cycle may be bottoming out. The fund house pointed to several tailwinds, including the decline in crude oil prices, a supportive interest rate and liquidity environment, and expectations of a normal monsoon, all of which could aid a revival in growth. While HSBC MF acknowledged that global trade uncertainties could continue to weigh on private capital expenditure in the short term, it remained confident about the medium-term trajectory. 'India's investment cycle is poised for an uptrend, driven by sustained government infrastructure push, rising private investments, and a revival in the real estate sector,' the fund house said. HSBC MF further highlighted emerging sectors like renewable energy, localisation of high-tech components, and India's expanding role in global supply chains as key catalysts that could accelerate growth. 'Nifty valuations are now aligned with their 5- and 10-year averages post the recent correction, and we remain constructive on Indian equities,' it added. On the macroeconomic front, HSBC MF flagged a challenging global backdrop marked by rising geopolitical tensions and economic uncertainties. It noted that the recent announcement of reciprocal tariffs by the US government could cast a shadow on both US and global growth prospects. However, India's Q4FY25 GDP growth at 7.4 percent year-on-year was a bright spot. HSBC MF pointed out that the government has sought to stimulate private consumption by reducing income tax rates in the Union Budget. Although government capex has moderated, it believes that private capex may pick up gradually, supported by policy measures and easing liquidity conditions. 'RBI's shift to more accommodative monetary policy, amid a weakening dollar and lower crude oil prices, has created further room for easing,' HSBC MF said, adding that a 50 basis point rate cut is now widely expected by economists. Additionally, the fund house cited the forecast of an above-normal monsoon as a positive driver for rural demand in the coming months. Despite headwinds such as weak global growth, global policy uncertainty, and slowing government capex, HSBC MF identified several domestic positives. These include a recovery in private capex, strong demand and lower inventories in the real estate sector, and stable global commodity prices benefiting India's inflation and fiscal dynamics. In summary, HSBC MF said it remains constructive on Indian equities despite global uncertainties, as domestic fundamentals continue to strengthen. The fund house believes that a supportive policy environment, improving macro indicators, and encouraging trends in private and public investments are likely to sustain market momentum over the medium term. While challenges remain, particularly on the global front, the outlook for India appears resilient and poised for continued growth. Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
India Today
03-06-2025
- Business
- India Today
Smallcap stocks are back in action again. Should you ride the wave?
After a shaky start earlier this year, smallcap stocks are back in the spotlight, racing ahead like they've got a point to prove. The smallcap space has come roaring back, outpacing the Nifty by a wide margin and pulling investor attention away from large, slow-moving the market's low in February 2025, the Nifty 50 index has risen by 12%. But the real jump has been in the mid and smallcap space. The midcap index has gone up by 20%, and the smallcap index has climbed 22% during the same just the last month, smallcaps have continued to lead the market. According to Axis Securities, 'The Smallcap index went up by 9.6% and the Midcap index by 6.1%, while the benchmark index, Nifty50, inched up marginally by 1.7%.'Axis Securities listed five key reasons behind this rally: earnings for the fourth quarter of FY25 were in line with what was expected, trade relations between countries improved, there was some relief on the geopolitical front, macroeconomic indicators for FY26 looked strong, and investors showed more interest in taking LEAD THE RALLYThe BSE Smallcap Index has jumped 21% in the past three months. In comparison, the Nifty 50 has gained 12% during the same time. Some smallcap stocks have given very high example, NACL Industries has shot up by 192%, and Garden Reach Shipbuilders (GRSE) has gone up 147%. Other stocks such as Suven Life, Centum Electronics, Cosmo First, Bharat Dynamics, Zen Tech, and Mangalore Chemicals have either doubled or come VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said, 'All the action is in the mid and smallcap space in response to the results.' However, he warned that 'investors should not chase mid and smallcaps without any concern for valuations.' He added that 'quality mid and smallcaps have the potential to outperform.'WHAT INVESTORS NEED TO KNOWSmallcap stocks are known for their ability to rise quickly, but they can also fall just as fast. After a strong rally like this, experts are advising caution. While the recent gains are impressive, many believe investors should not just follow the trend blindly.'Small-cap stocks are back in focus, and they have outperformed the broader market in recent weeks,' said Trivesh, COO at pointed out that while the Nifty fell 0.41% over the last week, the smallcap index gained 1.36%. From its April low, the smallcap index has recovered nearly 26%.At the same time, Trivesh said investors should not get carried away. 'Not all small caps are created equal,' he said. 'The recent correction in momentum-heavy portfolios has been a clear signal, chasing hype without looking at earnings strength can hurt.'He believes India's growth story remains strong, and smallcap stocks will be a part of that. But he also highlighted the need for a careful approach.'It is less about riding the wave and more about finding companies that can actually deliver on the ground,' he said. 'Focus on quality, sustainability of profits, and strong fundamentals. That is what will separate the winners from the rest in this space going forward.'advertisement(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
Mint
02-06-2025
- Business
- Mint
This small-cap has already gained 1,000%. Can AI fuel its next leap?
MPS Ltd has quietly turned into a market outperformer. The company's shares have surged over 50% in the past year, delivering returns that have far outpaced the BSE Smallcap Index's 11%, on the back of a string of strong quarterly performances. It has posted consistent growth in both revenue and net profit over the last four quarters, helped by its content solutions business. But the story runs deeper. The stock has delivered a staggering 1,000% return over the past five years, turning early investors into big winners. Also Read: FMCG stocks face margin pressure. Here's why The company's strategic alignment with long-term trends transforming the global learning and content ecosystem has catapulted the stock into a league of its own, far beyond what earnings growth alone can explain. So, what's driving this rally? And more importantly, can the company sustain the momentum as it targets the next phase of growth? In the sections that follow, we break down MPS' growth drivers, emerging opportunities, and the challenges the company must navigate as it aims for its ambitious FY28 revenue target. We also examine how it is leveraging artificial intelligence (AI) to sustain momentum and what that means for investors going forward. 50-year-old legacy meets innovation For the uninitiated, MPS is a business-to-business learning and platform solutions company powering education and research for companies. It has over five decades of experience in publishing outsourcing, three decades in eLearning, and 25 years in platform innovation. It is a combination of various leading institutions: Macmillan (1970), Tata Interactive Systems and an independent platform (Stanford, 1995). It is also present in 15 countries, with key markets being North America, Europe, Middle East, India, and Asia Pacific. Today, the company operates across three core segments namely content, platforms, and eLearning with content contributing over 50% to its revenue. In the content segment, the company offers comprehensive solutions from content creation and development to editorial, design, and production. It serves some of the world's leading publishers, learning companies, corporate clients, libraries, and aggregators via this segment. Also Read: This textile star's rally masks a margin meltdown. Should investors be worried? In the platform segment, it offers configurable SaaS products that support the entire content lifecycle. MPS has established itself as a pioneer in this space with a suite of robust platforms, including DigiCorePro, Insight, Impact Vizor, Sigma, Scolaris, THINK, and Mag+. These tools help clients manage complex content workflows efficiently and at scale. In the eLearning segment, MPS provides cutting-edge, custom learning solutions such as web-based tutorials, simulation and game-based learning, AR/VR modules, microlearning nuggets, motion graphics, and consulting services. From distressed buys to growth-focused deals Inorganic growth has been a significant growth driver for MPS in the past decade. The company has made seven acquisitions over eight years, with the largest being the acquisition of AJE (American Journal Experts) in 2024. It has also allowed it to reduce its revenue concentration to the top 10 customers from 75% in fiscal year 2014 to less than 50% by 2025. However, as most of these acquisitions were not very profitable initially, the company did not derive enough value from them until 2020. The company has recently reconsidered its acquisition strategy. It plans to shift from acquiring distressed assets to acquiring growing entities that can contribute to the profitability quickly. A key filter in this new approach is alignment with AI and technological innovation, ensuring that acquired companies bring in strategic AI capabilities that complement MPS's long-term roadmap. The company intends to maintain a standard run rate of one or two acquisitions every year in FY26 and beyond, which are not expected to require equity fundraising. To stay prepared for any large acquisitions, the company has secured an enabling resolution for fundraising via qualified institutional placement (QIP). This provides optionality for pursuing transformative deals in the ₹300-700 crore range and allows the company to pursue deals it might not have been able to finance solely through internal accruals and comfortable debt levels. High growth, healthy margins underscore MPS' strong five-year run Over the last five years, MPS has exhibited a strong turnaround in its financial performance on the back of an increase in demand for its services. The company's revenue has grown at a CAGR of 17%, more than doubling from ₹332 crore in FY20 to ₹727 crore in FY25. Net profit also has grown in tandem, rising from ₹60 crore to ₹149 crore over the same period, showcasing consistent profitability. Margins have shown a steady improvement as well. Operating profit margin of the company has grown from 24% in FY20 to 29% in FY25, reflecting better cost efficiencies and improved scale. Similarly, net profit margin has risen from 18% in FY20 to consistently stay above the 20% mark. This improved profitability is reflected well in its return ratios. The company's return on equity (RoE) stands at a robust 25.9% as of FY25, indicating a sharp enhancement in shareholder value creation. Return on capital employed (RoCE), also is significantly high at 35.3%, supported by the company's lean capital structure. On the balance sheet front, MPS has maintained a strong foundation. The company's borrowings have remained minimal, indicating a deliberately debt-light strategy. At the same time, it has judiciously expanded its asset base. Fixed assets have grown from ₹115 crore in FY20 to ₹346 crore in FY25, indicating significant capital investment. The company has also paid consistent dividends to shareholders. Also Read: Strong domestic demand, firm steel prices to keep SAIL in focus MPS' 4-year average dividend payout ratio stands at 73%, indicating that the company returned a significant portion of its profits to shareholders, while its 4-year average dividend yield stands at 3.7%. While the yield has moderated to 2.92% in FY25, this has been largely due to rising share prices rather than lower payouts. The stock is also on the radar of super investors. As per the latest shareholding pattern data, investor Mukul Agrawal holds a 4.5% stake in MPS, underscoring institutional and high-net-worth interest in the company. Tapping into a $600 billion opportunity with AI at the core The content industry is currently experiencing powerful structural tailwinds driven by the rising adoption of AI/ML technologies and automation. With the opportunity pegged at $600 billion, the scope for growth is vast, particularly for players such as MPS. To capitalize on this opportunity, the company is positioning itself as a frontrunner in digital learning by embedding AI at the core of its business strategy. Areas such as real-time translation, intelligent language editing, content generation, and accessibility services are already seeing strong demand, and MPS plans to capitalize on these trends by broadening its portfolio of AI-enabled solutions. Its research and development hub, MPS Labs, is at the forefront of this effort, leveraging AI, machine learning, natural language processing (NLP), and cloud-based technologies to develop tools that support the entire content lifecycle. It also plans to launch a dedicated AI and data practice unit by FY26. This unit will deliver market-facing, AI-driven solutions and is expected to function as a parallel revenue engine, reinforcing MPS's long-term growth strategy. Management remains confident that these AI-driven initiatives will scale meaningfully in the years ahead. MPS' vision for FY28 While being a market leader in the $600 billion digital learning and content solutions space may seem far-fetched for MPS at this stage, the company has set its sights on a more near-term, yet ambitious goal—reaching ₹1,500 crore in revenue by FY28. Management views this target as well within reach, given the vast opportunity the sector presents. At the heart of this roadmap is the company's "Going Gestalt" strategy. The strategy is an integrated, principle-driven approach designed to unlock synergy across its business segments and make MPS greater than the sum of its parts. To achieve its targets, MPS is relying on several strategic growth levers. The company is targeting an organic growth rate of 10–12%, supported by focused investments in new capabilities and expansion of high-potential accounts. It also plans to focus on expanding Strategic Customer Partnerships (STAR accounts), with a goal to increase the number of STAR accounts to 100 by the end of FY25. This strategy is expected to bring significant progress in organic growth and margins. Product innovation is another critical focus area. In 2025, MPS plans to launch enhanced versions of its SaaS offerings to further boost its recurring revenue base. Finally, the company plans to pursue its updated acquisition strategy that extends its geographic footprint and market presence. Priority regions include India, the Middle East, Australia, China, Brazil, and South Korea. The acquisition of AJE is expected to play a significant role in accelerating progress toward the company's Vision FY28. What could derail the momentum? While MPS has delivered strong growth over the last five years, several structural challenges remain. The company faces client concentration risk as it derives all its revenue from the publishing industry, with a significant portion coming from its top five clients who contribute around 36% to the company's total revenue. This heavy dependence on a few clients increases its vulnerability to contract losses or budget cuts. Additionally, it also faces concentration risk with respect to geographies. A large chunk of the company's revenues comes from specific geographies (45% from North America and 28% from the UK/Europe). Any economic slowdown in these regions could materially impact performance. There is already a slowdown underway in the US and Europe, with projections pointing to weak or very weak growth in 2025. This could weigh on the company's financial performance. The IT industry, too, is facing headwinds across several key areas including hiring, revenue growth, and discretionary spending which could further impact business momentum. Conclusion MPS has quietly transformed itself from a niche content player into a high-growth, high-margin digital solutions company. Over the past few years, it has steadily scaled its capabilities across digital learning, AI-driven platforms, and enterprise solutions. For investors with a long-term horizon, the stock presents a compelling bet, offering a rare combination of profitability and innovation-led growth. However, valuations appear stretched. The stock is currently trading at a price-to-earnings (P/E) ratio of 31x, nearly double its 10-year average historical P/E of 16.4x, suggesting that much of the optimism may already be priced in. Investors should be mindful of the risks, as any slowdown in growth or external headwinds could lead to sharp price corrections given the high valuation. Ayesha Shetty is a research analyst registered with the Securities and Exchange Board of India and a certified Financial Risk Manager. Disclosure: The author does not hold shares in any of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers should conduct their own research and consult a financial professional before making investment decisions.
Economic Times
02-06-2025
- Business
- Economic Times
Smallcap stocks are doubling money like it's 2024 once again. Should you jump in?
Money is doubling fast and it's not in the Sensex or Nifty. Smallcap stocks are once again stealing the spotlight in Indian markets, posting a stunning rally that has investors rushing back into the segment. ADVERTISEMENT The BSE Smallcap Index has jumped 21% in just three months, comfortably outpacing the Nifty's 12% gain in the same period. Several individual names have delivered astonishing returns — NACL Industries has soared 192%, while Garden Reach Shipbuilders (GRSE) is up 147%. Stocks like Suven Life, Centum Electronics, Cosmo First, Bharat Dynamics, Zen Tech, and Mangalore Chemicals have either doubled or come close. The smallcap momentum is unmistakable and it's being powered by both macro conditions and strong flows, just like what Dalal Street saw in 2024. 'We firmly believe that over the long-term in a growth economy like India, smallcap stocks could outperform largecaps,' said Venugopal Manghat, CIO – Equity at HSBC Mutual Fund. 'Smaller companies tend to thrive in expanding economic cycles leading to higher earnings growth. The environment is conducive — low inflation, falling interest rates, improving liquidity and strong tailwinds in manufacturing, infrastructure and financialization.'A mix of economic recovery, liquidity inflows and earnings optimism is fuelling the rally. But alongside the euphoria, voices of caution are growing louder. Also read: Don't ignore smallcaps: HSBC MF CIO on where growth lies in FY26 ADVERTISEMENT 'Despite the sharp upmove recently, largecaps currently offer a better balance of earnings visibility and valuation comfort on a forward-looking basis,' warned Krishna Appala, Fund Manager at Capitalmind PMS. 'The divergence between earnings and valuations in the broader market calls for greater selectivity. The environment today rewards fundamentals and discipline over broad-based exposure — especially when mid and smallcap multiples leave little room for error.'Indeed, valuations are no longer cheap. Trideep Bhattacharya of Edelweiss estimates that 'mid and small caps are trading at a 17% to 25% premium to their 10-year averages.' He emphasizes the importance of being selective: 'We advise that where there is a valuation premium, it must be matched with an earnings growth premium. Stocks with faltering growth but high valuations are in the penalty box.' ADVERTISEMENT Bhattacharya also advocates tailoring investment strategy to individual risk appetites: 'For conservative investors, we recommend flexicap funds. For moderate risk-takers, multicap funds. And for those with higher risk appetite and a 5–10 year horizon, midcap funds are ideal.'Fundamentals are showing signs of support. Some sectors posted better-than-expected numbers in the March quarter. 'There were a few pockets where Q4 results exceeded expectations,' said Sneha Poddar of Motilal Oswal. 'Raw material prices remained stable, global demand was supportive, and FMCG companies managed weaker urban demand with price hikes. Overall, demand wasn't as weak as feared.' ADVERTISEMENT Also read | Smallcap mania is back. But do Q4 earnings really justify the multibagger hype? Still, market veterans warn that the easy money may already be made. After a relentless three-month rally, the risks of overpaying in the smallcap space are rising, particularly in stocks where future earnings may not live up to the newly inflated real test now lies in sustainability. Will earnings keep pace with valuations? Will global liquidity remain supportive? And perhaps most importantly, will investors stay disciplined when the next correction hits? ADVERTISEMENT 'The divergence between earnings and valuations in the broader market calls for greater selectivity. The environment today rewards fundamentals and discipline over broad-based exposure — especially when mid and smallcap multiples leave little room for error,' Apala said. For now, the fireworks in smallcaps are lighting up investor portfolios. But those looking to join the party now may need to tread carefully. In this market, growth and discipline, not just price charts, will separate the winners from the rest. (Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)
Time of India
02-06-2025
- Business
- Time of India
Smallcap stocks are doubling money like it's 2024 once again. Should you jump in?
Smallcap stocks are experiencing a resurgence, mirroring the gains seen in 2024, with the BSE Smallcap Index significantly outperforming the Nifty. While economic recovery and liquidity inflows fuel this rally, experts caution about stretched valuations and the need for selective stock picking based on strong fundamentals. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Money is doubling fast and it's not in the Sensex or Nifty Smallcap stocks are once again stealing the spotlight in Indian markets, posting a stunning rally that has investors rushing back into the BSE Smallcap Index has jumped 21% in just three months, comfortably outpacing the Nifty's 12% gain in the same period. Several individual names have delivered astonishing returns — NACL Industries has soared 192%, while Garden Reach Shipbuilders (GRSE) is up 147%. Stocks like Suven Life, Centum Electronics, Cosmo First, Bharat Dynamics, Zen Tech, and Mangalore Chemicals have either doubled or come smallcap momentum is unmistakable and it's being powered by both macro conditions and strong flows, just like what Dalal Street saw in 2024.'We firmly believe that over the long-term in a growth economy like India, smallcap stocks could outperform largecaps,' said Venugopal Manghat, CIO – Equity at HSBC Mutual Fund. 'Smaller companies tend to thrive in expanding economic cycles leading to higher earnings growth. The environment is conducive — low inflation, falling interest rates, improving liquidity and strong tailwinds in manufacturing, infrastructure and financialization.'A mix of economic recovery, liquidity inflows and earnings optimism is fuelling the rally. But alongside the euphoria, voices of caution are growing louder.'Despite the sharp upmove recently, largecaps currently offer a better balance of earnings visibility and valuation comfort on a forward-looking basis,' warned Krishna Appala, Fund Manager at Capitalmind PMS. 'The divergence between earnings and valuations in the broader market calls for greater selectivity. The environment today rewards fundamentals and discipline over broad-based exposure — especially when mid and smallcap multiples leave little room for error.'Indeed, valuations are no longer cheap. Trideep Bhattacharya of Edelweiss estimates that 'mid and small caps are trading at a 17% to 25% premium to their 10-year averages.' He emphasizes the importance of being selective: 'We advise that where there is a valuation premium, it must be matched with an earnings growth premium. Stocks with faltering growth but high valuations are in the penalty box.'Bhattacharya also advocates tailoring investment strategy to individual risk appetites: 'For conservative investors, we recommend flexicap funds. For moderate risk-takers, multicap funds. And for those with higher risk appetite and a 5–10 year horizon, midcap funds are ideal.'Fundamentals are showing signs of support. Some sectors posted better-than-expected numbers in the March quarter. 'There were a few pockets where Q4 results exceeded expectations,' said Sneha Poddar of Motilal Oswal. 'Raw material prices remained stable, global demand was supportive, and FMCG companies managed weaker urban demand with price hikes. Overall, demand wasn't as weak as feared.'Still, market veterans warn that the easy money may already be made. After a relentless three-month rally, the risks of overpaying in the smallcap space are rising, particularly in stocks where future earnings may not live up to the newly inflated real test now lies in sustainability. Will earnings keep pace with valuations? Will global liquidity remain supportive? And perhaps most importantly, will investors stay disciplined when the next correction hits?'The divergence between earnings and valuations in the broader market calls for greater selectivity. The environment today rewards fundamentals and discipline over broad-based exposure — especially when mid and smallcap multiples leave little room for error,' Apala now, the fireworks in smallcaps are lighting up investor portfolios. But those looking to join the party now may need to tread carefully. In this market, growth and discipline, not just price charts, will separate the winners from the rest.: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
