Steady quarterly numbers, coupled with relatively lower valuations and anticipation of an economic turnaround, have led to a renewed buying interest in these stocks.
By Urvashi Valecha
After three years of underperformance, the Nifty Midcap 100 index closed at a record high on Thursday. The index rose 1.45% to close at 21,964.55. The abundance of liquidity, rush of new investors and the start of an economic recovery cycle have helped fuel the midcap rally.
The Nifty Midcap100 and the Nifty Smallcap 100 have so far in the current fiscal given the highest returns since fiscal year 2010. The Nifty Midcap 100 has given returns of 87.7% while returns are 105.8% for the Nifty Smallcap100. The returns of benchmark Nifty for the same period stood at 64.4%.
Steady quarterly numbers, coupled with relatively lower valuations and anticipation of an economic turnaround, have led to a renewed buying interest in these stocks. According to Hemang Jani, head – equity strategy, broking and distribution, Motilal Oswal Financial Services, after three years, initial indications of an economic revival and the lower earnings base of companies compared to previous years have led to buying in midcap stocks. “A combination of factors such as abundant liquidity, high-risk appetite due to the current bull market and strong participation of new retail investors has led to the rally in midcap stocks.”
While midcap stocks managed to reach their all-time highs on Thursday, experts said the bull cycle will continue only if the Union Budget and third and fourth quarter results keep up with market expectations. Deepak Jasani, head – retail research, HDFC Securities, said: “On an overall basis, midcap stocks have run up too quickly, most of these stocks could remain sideways or consolidate for some period of time before they start their second move up. It would be clear by May after the Union Budget and two quarterly numbers whether midcaps will continue to rally.”
The Nifty Smallcap 100 index is, however, 22.8% short of its all-time high. According to experts, if the rally in midcaps were to sustain, then smallcap stocks would attempt to touch their all-time highs.
The Nifty Midcap100 index, which touched its previous record high of 21,731.80 in 2018, has been underperforming the benchmarks after a huge sell-off because of Sebi’s market cap categorisation and the Covid-19 pandemic.
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