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Stock market 2022: Smaller firms disappointed, earnings to be covered till 2023



2022 Is an Uncertain Year for Small Company Stocks

Small company stocks that had provided investors with high returns over the previous two years have significantly declined this year due to increased market volatility and rising interest rates at banks, prompting many investors to avoid investing in these shares. Experts predict that the situation is expected to improve over the course of this year; in particular, BSE’s 30-share Sensex has seen several record highs during this period. On the contrary, small company stocks have shown poor performance this year, with BSE Small Cap index declining by over three percent and BSE Sensex rising 2,673.61 points by December 27. Though performance among mid and small cap stocks were disappointing this year, analysts anticipate an improvement next year.

Investing in Large Companies

BSE Sensex

BSE Sensex

Though India’s stock market has experienced obstacles such as Russia-Ukraine conflict, inflation, and interest rate fluctuations, it has managed to not only maintain its strong position but become one of the top performers on global markets. Santosh Meena, Head of Research at Swastika Investmort Limited, notes that other than banking industry income levels, smaller company earnings are less than satisfactory. With higher capital requirements associated with smaller firms than larger counterparts and consequently rising interest rates becoming an increasing source of worry. Foreign investors typically favor large firms and were net buyers of them during the past two months. SIP inflows for regular investments remained at record levels with most investments going towards large firms – an indicator of outperforming market performance for their stocks.

Analysts note that small company indices tend to experience greater volatility compared to medium and large ones, and as of December 27 the BSE Smallcap index had lost 940.72 points or 3.19 percent from its highest point on January 18 to its low point of 23261.39 on June 20. Meanwhile, Midcap index gained 215.08 points or 0.86 percent by December 27, having experienced lows at 20814.22 on June 20 and highs of 26440.81 by December 14 within one year – similar results can be observed with its benchmark Sensex reaching record height of 63583.07 on December 1 before falling back down 52 weeks to 50921.22.22 on June 17.

Profit Booking in Small Companies This Year

Sunil Damania - CEO Markets Mojo

Sunil Damania – CEO Markets Mojo

Sunil Damania, Chief Investment Officer for Markets Mojo investment consulting firm, stated that 2022 wasn’t kind to small and mid-cap stocks due to their stellar performance in 2020 and 2021. Profit booking saw investors selling off stocks bought at lower prices during that time; consequently, performance of small and mid-cap shares lagged behind larger counterparts; analysts also highlight local investors tend to prefer smaller firms while foreigners often favor larger ones.

Possible Improvements for 2023

Meena anticipates early 2023 could experience increased volatility as a result of global uncertainties; however, mid and small-cap stocks should benefit in subsequent quarters. Damania believes 2022 wasn’t kind to small and medium companies’ stocks but that this might change come 2023.

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