Nifty Midcap100 is nearly 6% away from all-time high

By Urvashi Valecha

The market’s rally is not just restricted to the benchmark indices. The Nifty Midcap 100 index is just 6.5% away from the all-time highs (21,731) that it witnessed in January 2018. The rally in the Nifty Midcap 100 stocks is mainly on the back of increased liquidity and retail participation in the market. In this backdrop, experts say that the Nifty Midcap 100 index could touch its all-time high by January 2021.

The Nifty Midcap100 has outperformed the gains made by the 50-share index Nifty since the markets bounced back from their March 2020 lows. From the period between March 23 till date, the Nifty Midcap100 index has risen by 85% whereas, Nifty is up by 77.1%. As the benchmarks have become increasingly fairly valued in the eyes of investors, many of them are moving to stocks in the midcap index.

Additionally, the abundant liquidity in the market and the upward momentum of the stock markets is expected to continue, which is why experts believe that the Nifty Midcap 100 index could touch its all-time highs in early January. Deepak Jasani, head – retail research, HDFC Securities, said, “If the current momentum in the markets continues, then the Nifty Midcap100 could try and touch its all-time highs in early January itself.

The stock markets are essentially witnessing a rotation of funds from large caps to midcaps since large caps have become fairly valued. Additionally, surplus liquidity in the markets is also contributing to the rise in the midcap index.”

India’s economic indicators have been improving ever since the government announced the easing of the lockdown. Moreover, corporate earnings in the September quarter were also better than expected which positively surprised the street. This has built the expectation that FY22 will be the year of recovery. Many foreign brokerages also believe that the emerging markets are at the start of an earnings supercycle. In an earlier report, Nomura stated that its Business Resumption Index showed improvement despite the Covid-19 related challenges on better than expected GDP data for Q3.

The brokerage said, “November was a busier month than October; the NIBRI picked up by 4.6% month on month compared to a 2.1% gain in October, reflecting ‘residual’ festive mobility and demand. This comes despite an increased threat of pandemic resurgence and a revival of some lockdown restrictions.”

Since, midcaps are more economy sensitive they tend to outperform when the economic cycle begins to recover according to experts, which is why the midcap index could see its outperformance to the benchmarks continue.

However, the Nifty Smallcap 100 index is 29% away from its January 2018 highs of 9,580 and are not expected to outperform. This is because unlike the midcaps, the performance in terms of earnings for most smallcap stocks has not surprised positively. Moreover, the liquidity is limited to large cap and midcap stocks.

Ambareesh Baliga, an independent market expert, said, “The smallcap stocks may not touch their all-time highs for quite some time. This is because smallcaps as a segment have not had many positive surprises, though we could see specific stocks outperforming.”

The Nifty Midcap 100 and Nifty Smallcap 100 have so far risen by 2.4% and 2.2% respectively in December. Going forward, a large reversal of the midcap rally for the next one or two quarters may not take place as long as interest rates continue to be low across the globe and Indian economy continues its upward climb.