Mid cap and small cap companies on GST: he procedural part has gone off well, though the reconciliation of bills with counterparties is yet to happen. Many of the companies we have spoken to are reasonably satisfied with their experience. There were apprehensions about whether the system will be robust enough to accommodate huge volumes which come at the same time. All those fears have been laid to rest. Now, one will have to wait for the reconciliation part which is yet to happen.
We see decent tangible benefit coming through GST, as there is a change of heart in the unorganised segment post demonetisation. When I talk to smaller companies or chartered accountants who deal with such companies, I see readiness amongst smaller firms to enter the formal economy. That is the bigger eventual gain for the economy, while the efficiency gain for larger companies is a medium-term story.
Are there enough opportunities available? There is a general observation that small and midcap stocks are expensive because of outperformance in the past three years. However, the picture is a bit more complicated beyond that initial general observation. Where I would like to bring another perspective is that the kind of growth we are having in the economic cycle is largely driven by domestic demand. Small and midcap segment is more exposed to domestic demand. They are far more material beneficiaries of this kind of growth compared to large caps. Clearly, that is one reason why the market is also focusing on mid and small caps as you are seeing far better earnings growth there compared to large caps.
Returns expectations expect from mid and small-cap stocks : Given the larger sluggish earnings growth and reasonable full valuations, we expect 12% earnings growth for next three years and this is the equivalent return we expect from Indian equities.
The challenge of finding good quality companies at acceptable valuations is much more now. But it was much higher a year back. In the past one or two quarters, there is a lull in midcaps and there is some sanity coming to valuations. Good quality stocks have corrected and some decent IPOs are coming. In the small cap space, we have used the IPOs well. That's how we are managing the situation.
India
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