Mid- & small-caps on track to outperform bluechips after 3 years
The Midcap index is up 84.8% and Smallcap index has gained 105.8% from their March 24 lows. The Sensex is up 81% from its March 24 low. But, mid- and small-cap stocks are still lagging behind the performance of bluechips since January 2018.
Experts say mid- and small-caps may see more trading rallies in days to come.
Mumbai: Mid- and small-cap stocks outshone bluechips on Wednesday and are on track to be the best-performing share categories in 2020 for the first time in three years. Analysts say growing retail participation is driving the rally in smaller companies which could continue well into 2021. While the Sensex and Nifty rose 1% each on Wednesday, the BSE Midcap index gained 2.4% and the BSE Smallcap index surged 2.65%.
“Risk appetite is strong due to high liquidity, lower yields and the upmove in the market in the past 8 months. Retail investors are also more active," said Hemang Jani, head of equity strategy, broking and distribution at Motilal Oswal. "When the economy is on revival path, broader markets and mid-cap stocks tend to do better as compared to largecaps," said Jani.
The Midcap index is up 84.8% and Smallcap index has gained 105.8% from their March 24 lows. The Sensex is up 81% from its March 24 low. But, mid- and small-cap stocks are still lagging behind the performance of bluechips since January 2018. In this period, the Sensex has given an absolute return of 36%, while the BSE's mid-cap index is down 3.6% and the small-cap index is down 13%.
While the Sensex set new record highs earlier this week and is near the lifetime high level currently, mid- and small-cap indices are far from their lifetime high levels. The broader market had also been battered when the market witnessed a 40% selloff in February-March.
The Midcap index had hit an all-time high of 18,321.37 in January 2018 and the SmallCap index hit lifetime high of 20,183.45, also in January 2018.
Experts say mid- and small-caps may see more trading rallies in days to come. The valuation gap between smaller companies and largecaps has raised expectations of outperformance.
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"Mutual funds have been left out in the rally and NAV propping will start on the 31st, so midcaps will go up further. The breadth of the market has been positive with sectoral rotation. We will see more such trading rallies, but there's froth in the market and in the next one month, mid- and small-caps will see pressure," said Sanjiv Bhasin, director, IIFL Securities. He believes that the broader market will outperform in 2021.
