Analysts said, however, the pace of upside in these stocks especially those that have outperformed in recent weeks could slow after the US Federal Reserve’s rate-setting meeting on September 18.
On Friday, the Nifty Midcap 100 crossed 60,000 for the first time, while the Nifty Smallcap 50 hit a fresh all-time high even as the Nifty 50 closed lower.
“Despite the expensive stocks, the investor sentiment is optimistic given the bullishness in the markets, which is risky since any negative news could lead to sharp corrections,” said Shrikant Chouhan, head of research at Kotak Securities. “However, any positive news could lead the mid and small caps higher.” Chouhan said the bullish sentiment is fuelled by anticipation of a 50 basis point interest rate cut by the US Fed on Wednesday.In the last month, the Nifty Midcap 100 and Nifty Smallcap 50 rose 5.54% and 10.07%, respectively, while the benchmark Nifty rose 3.32%.
“Since the midand smallcaps have run up before a key event like the US Fed meeting, some profit booking is likely, post the actual outcome,” said Ruchit Jain, lead research analyst at 5paisa. Jain sees the Nifty Midcap 100 index facing a hurdle at 60,500 while the support is at 58,500 levels.
What Red Flag? SMID Bulls See Only Red Rags
Mid-cap and small-cap stocks have continued running up so far this year despite warnings of the segments being overheated after the rally in the past three years. With strong flows into these shares from retail investors through equity mu tual funds and direct investments continuing unabated, analysts said most are trading at elevated valuations. While the benchmark indices have seen some pullback, the midcap and small-cap spaces have relatively outperformed the benchmark due to strong volumes in stock-specific actions, said Jain.
“Technically the markets are in an uptrend and when the markets are moving higher, the mid and small caps tend to outperform,” said Jain. “This strong uptrend is likely to continue in the near term despite the stretched valuations since there is no indication of a reversal in trend.”