The midcap and smallcap stocks are abuzz on Dalal Street with their strong outperformance this year. The Nifty Midcap 100 index has jumped more than 27% this year so far, crossing the 40,000-mark for the first time ever on Tuesday. Nifty Smallcap 100 index also stands at around 30% returns year-to-date.
On the other hand, benchmark index Nifty has risen by nearly 8% in 2023.
The rally in small and midcap stocks has surprised even top investors of Dalal Street, including Porinju Veliyath, often dubbed ‘small cap czar’.
“I have never seen such a robust and sustained bull phase in small & mid-caps in my 33 years of career!,” Ace investor Porinju Veliyath wrote on social media X.
Veliyath, an influential voice in the Indian Stock Market, is known for his knack of winning on multibagger stock bets.
However, another market maven advised Veliyath not to jinx the smallcap and midcap rally as these stocks can even fall drastically overnight.
In his witty reply to Veliyath’s tweet, Shankar Sharma said, “Yaar Poriinju, nazar mat lagao. Mid caps can become mad caps over a weekend. Small caps can become micro caps in a millisecond.”
The recent rally in the smallcap and midcap stocks comes on the back of healthy buying by foreign portfolio investors (FPIs), strong earnings growth in quality stocks and improving economic conditions.
The Indian stock market has witnessed broad-basing over the last nine months. It has also undergone a transformation from Quality to Value, and from Secular sectors to Commodities with different sectors being the flavor of the month in CY22.
From being entirely dominated by a narrow basket of quality large cap stocks of select sectors, markets have broadened with the participation of other sectors too during the last eight months, as per a report by brokerage firm Motilal Oswal Financial Services.
Mid and small caps saw a jump in their market cap contributions since the previous Nifty-50 peak of December 2022. The rally in Nifty Midcap 100 constituents was skewed more towards top 15 companies in CY23YTD.
On the valuations, analysts believe Nifty 50 and Nifty Midcap indices were trading at a premium, while the Smallcap 100 index was trading at a discount to the LPA on a 12-month forward P/E basis.
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