Why small-cap IT stocks could be in focus this week

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Stocks to watch this week: After ushering in FY23 on strong note, Indian stock market could be strongly dictated by FIIs’ trade pattern and corporate earnings by the listed companies. However, one must not forget that historically month of April at Indian secondary market has always remained one of the best months where small-cap and mid-cap stocks outperform other segments. As result season would be beginning with IT majors like TCS, Infosys, Wipro, HCL Tech Q4 FY22 results, market experts are expecting small-cap IT stocks to remain in focus this week.

According to stock market experts, market is expecting strong Q4 results of IT giants like TCS, Wipro, HCL Tech, Infosys etc. As strong Q4 results of IT majors may trickle down towards small-cap IT companies too, FIIs who have stood with DIIs as net buyers in last week session, may look at small-cap IT stocks like Firstsource Solutions Limited (FSL), Birlasoft, KPIT Tech, Mastek for higher return in small time. They said that small-cap IT stocks could be the stocks to watch this week.

Expecting FIIs focus on mid-cap and small-cap stocks tghis week; Santosh Meena, Head of Research, Swastika Investmart Ltd said, “Historically, April remains one of the best months for the equity markets where Mid-cap and Small-cap stocks tend to outperform. It will be important to see how FIIs will behave in FY23 after relentless selling in the second half of FY22. However, they have changed their gear in the last week with decent buying of 5600 crore.”

On why small-cap IT stocks will be in focus this week; Avinash Gorakshkar, Head of Research at Profitmart Securities said, “Market is expecting strong Q4 results of giant IT companies like Infosys, TCS, Wipro, HCL Tech etc. In that case, there can be trickle down of positive business sentiments towards the small-cap IT companies as well. As FIIs are gearing up for fresh buying, they may look at small-cap IT stocks for their fresh investment.”

On small-cap IT stocks to buy this week; Avinash Gorakshkar of Profitmart Securities said, “FIIs and DIIs are expected to look at strong small-cap IT stocks like FSL, Mastek, KPIT Technologies, Birlasoft, etc.” He said that other than IT sector; export oriented auto component, pharma and chemical stocks in small-cap segment would also attract FIIs interest this week.

Small-cap stocks raked in big gains in fiscal 2021-22 by giving up to 36.64 per cent returns, outshining the bigger benchmark gauge and experts believe that they may continue to outperform in FY23.

The BSE small-cap index jumped 7,566.32 points or 36.64 per cent in the 2021-22 fiscal, and the mid-cap gauge went higher by 3,926.66 points or 19.45 per cent.

In comparison, Sensex closed the 2021-22 financial year with a gain of 9,059.36 points or 18.29 per cent.

The small-cap index reached an all-time high of 31,304.44 on January 18 this year, after hitting its 52-week low of 20,282.07 on April 19, 2021.

The mid-cap gauge reached a record high of 27,246.34 on October 19, last year. It had hit its 52-week low of 19,423.05 on April 19, 2021.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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