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Mint
4 days ago
- Business
- Mint
Iran-Israel war: Are small-cap stocks most exposed to Middle East tensions amid high valuations?
Indian stock market: Geopolitical tensions are once again flaring up in the Middle East, as hostilities between Iran and Israel continue for the fifth consecutive day, making investor sentiment jittery towards riskier assets. Global markets have been on edge, with the conflict adding fresh strain to an already fragile global economy, one that is still grappling with the effects of trade tensions and the ongoing Russia–Ukraine war. For the Indian stock market, the Iran–Israel conflict has added to existing concerns around stretched valuations. Although India does not have significant trade dependence on either country, the tensions have triggered a sharp spike in crude oil prices, dampening market sentiment. While local equities initially reacted negatively to the developments, they later rebounded sharply, with strong resilience in large-cap stocks providing much-needed support to frontline indices, helping them trade higher despite global concerns. During periods of heightened market volatility, stocks with rich valuations tend to correct more than those with reasonable valuations. Although the overall market appears stretched following a sharp rally over the last three months, analysts believe small-cap stocks may face further pain if geopolitical tensions persist, as they are more richly valued compared to large-cap counterparts. Vinod Nair, Head of Research at Geojit Financial Services, said, 'Despite ongoing geopolitical tensions between Israel and Iran, the market moved higher, supported by gains in large-cap stocks, as investors maintained their focus on long-term fundamentals during volatile times. Geopolitical developments in the Middle East are likely to influence near-term market sentiment, with any signs of de-escalation being closely monitored. Small-cap stocks are expected to underperform in the short term, given their elevated valuations and lack of immediate triggers.' Recent data also indicates a shift in retail investor preference towards large-cap stocks, with ownership in mid- and small-cap counters falling to a nine-quarter low amid a broader market sell-off during the March 2025 quarter, according to the NSE report titled 'India Ownership Tracker.' Meanwhile, allocation towards large caps has risen, reflecting a growing inclination for the relative safety of blue-chip stocks amid market turbulence. According to the domestic brokerage firm Kotak Institutional Equities, small caps witnessed the largest cuts on their FY2026 EPS estimates. The brokerage notes that continued weakness in parts of the economy has resulted in continued downgrades to consensus earnings across market caps for FY2026E/27E. However, small caps lead the EPS cuts with a 6% cut in their FY2026 EPS estimates versus 2% for large caps and 3% for mid-caps. The downward revisions have been broad-based, with consumer-facing businesses seeing larger cuts. The same can be seen in earnings cuts of individual stocks of the Nifty 500 Index, with 70% of stocks seeing downgrades versus 30% of stocks seeing upgrades over April-June 2025, noted the brokerage. The Nifty SmallCap 100 is trading at a 1-year forward price-to-earnings (P/E) multiple of 27.2x, significantly higher than its long-term average and much closer to the Nifty MidCap 100's P/E of 28.3x. The spike in Nifty small-cap-100 forward P/E valuation to near mid-caps and at a premium to Nifty-50 This is unusual, as small-cap stocks typically trade at a discount to mid-caps due to their higher risk profile and lower liquidity. The sharp rise in valuations places the index near its historical peaks, levels that were last seen during previous periods of overheated sentiment, such as mid-2021 and pre-2018, as per the analysis done by domestic brokerage firm InCred Equities. In contrast, the Nifty 50 is trading at a more reasonable 20.7x forward P/E. The narrowing gap between small- and mid-cap valuations is causing discomfort among investors, particularly in an environment of persistent global uncertainties and uneven earnings visibility. Without a strong pickup in earnings growth, such elevated valuations leave little room for upside and increase the risk of a valuation-driven correction. 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.
Mint
26-05-2025
- Business
- Mint
Mutual fund holding in NSE-listed firms surpasses direct retail for the first time
Domestic mutual funds' holding in NSE-listed companies has surpassed ownership of individual investors for the first time to an all-time high, as flows into systematic investment plans remain steady amid selling in mid- and small-caps by the direct retail category. Mutual funds' share as a percentage of the total market capitalization of the companies listed on the National Stock Exchange (NSE) stood at a record high 10.4% in the quarter ended March 2025, surpassing the 9.5% share of individual investors who trade directly, according to NSE's India Ownership Tracker report. Record inflows These funds infused ₹1.9 trillion into equities in Q4 of FY25, taking total net inflows to ₹6.1 trillion for the year, the highest for any fiscal to date. Read more: Why balanced advantage funds are back in focus for moderate risk investors 'In value terms, DMF (domestic mutual fund) holdings stood at ₹42.4 trillion, down just 2.4% QoQ, despite a larger drop in the overall market cap, reflecting sustained net equity purchases," the report said, adding that the strong momentum was 'driven in part" by continued retail participation through systematic investment plans (SIPs). Individual holding in NSE-listed companies declined by 30 basis points sequentially to a seven-quarter low of 9.5% in January-March, led by reduced share in mid- and small-cap companies--a segment that saw aggressive buying by individuals over the past few years, according to the report. 'In value terms, individual holding in NSE-listed companies fell by 9.2% QoQ to ₹38.9 trillion—exceeding the overall drop in market cap—indicating subdued retail activity and elevated market volatility and uncertainty," the tracker showed. Market veterans expect the trend to continue, given that individuals trading directly tend to use the mutual fund route after encountering losses in their investments. 'We have seen market volatility between October last year and 7 April, which has singed direct retail," said B Gopkumar, managing director and chief executive officer at Axis Mutual Fund. 'This trend in holding will weigh in favour of mutual funds as some individual investors who have been hit by losses in any cycle tend to return through the MF route." Mutual fund inflows are expected to remain buoyant, said analysts. Read more: Why do your returns rarely match what funds deliver? "With the investment environment turning more favourable, mutual fund flows are likely to gain further strength," said Nirav Karkera, head of research at wealth-tech platform Fisdom. 'Positive equity outlook and a gradually emerging risk-on sentiment are expected to drive continued interest from retail investors." The total market cap of the listed universe fell to ₹408.9 trillion as of March from ₹436.6 trillion as of December.
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Business Standard
25-05-2025
- Business
- Business Standard
Mutual funds storm the 10% citadel, now claim market's third crown
Riding a swell of SIP inflows, they redraw investor playbook Listen to This Article Domestic mutual funds (MFs) have emerged as the third-largest investor group in listed Indian companies. National Stock Exchange's (NSE's) latest India Ownership Tracker report shows MFs' stake in total market capitalisation crossing the 10 per cent mark for the first time in the fourth quarter of 2024-25 (FY25). MFs' ownership, which stood at 8.9 per cent in March 2024 and 9.9 per cent in December 2024, climbed to a record 10.4 per cent by March 2025. Over the past year, MFs surpassed individual investors and the government to claim the third-largest investor group position. 'Aided by sustained systematic investment plan
