Rs 1 lakh in midcaps is Rs 1.77 lakh now in Modi era

The Nifty and the Sensex were the stars of Tuesday's rally, but the real heroes have been the small and mid-cap shares. Sample this: An investor who'd had put Rs 1 lakh in BSE Midcap shares on May 16, 2014, just before the BJP won the Parliamentary elections, would have been richer by Rs 77,000 by Tuesday. Technical indicators suggest that if he holds on, he might just better the 77% return on investment to date. Similarly, those who invested a similar amount in BSE SmallCap would be sitting on 76% gains.

All other indices, barring realty, have generated returns between 7% and 88% -with consumer durables taking the cake -over the period. Technicals suggest that though the Nifty PE might be trading above its historical average of the past five years, this and other indicators are at the bottom of the cycle and there is huge scope for improvement from here, according to ICICI Prudential MF.

This increases the likelihood of a further upside. The Nifty currently trades at a PE of 23.59. It was 27.6 in December 2007, the then market peak. Similarly, the price to book was at 5.7 in 2007 while it's just 3.44 now.