The Nifty Midcap and Nifty Smallcap indices have surged almost 38 percent and 47 percent, respectively, in 2023 so far as against a 12 percent jump in Nifty.
The Nifty Midcap index advanced 10 percent in November while the small-cap index rose 12 percent as against a 5.5 percent rise in benchmark Nifty.
Meanwhile, in the last one year as well, the Nifty Midcap and Nifty Smallcap indices have rallied 34 percent and 42 percent, respectively, versus an 8 percent gain in Nifty.
Just in today's deals, the Nifty Midcap 100 index hit another record high of 43,385, breaching the 43,000 mark for the first time ever. Similarly, the Nifty Smallcap 100 index also hit its latest peak of 14,305.
From its 52-week low of 29,200.20, hit in March 2023, the mid-cap index has surged 48.5 percent. Whereas, the Nifty Smallcap index has soared 65 percent from its 52-week low of 8,682, hit in March 2023.
The mid-cap index has been positive in 7 of the 11 months so far this year. It was in the red in the first 3 months of the year and in October. It rose the most in November, gaining over 10 percent and shed the most in October, down over 4 percent.
The trend is the same for the small-cap index. It rose in 7 of the 11 months so far this year and fell in the first 3 months of the year and October. It also rose the most in November, gaining 12 percent and shed the most in Feb, down 3.64 percent.
Most experts noted that mid and small-cap stocks have performed better than largecaps in recent months. After correcting earlier this year, the broader market stocks had favorable valuations which led to rising investor interest. But now that valuations of mid and smallcaps have recovered strongly, they advise investors to remain cautious before heavily investing in these stocks. Experts suggest investors to take a stock-specific approach if they wish to accumulate more stocks from this space.
Largecaps have generally underperformed significantly as compared to smallcaps and microcaps. We believe quality comfort, earnings comfort, and valuations; suggest that investors would do well to move money towards quality and more specifically largecaps.
Our optimism extends across the market. We anticipate that select large-cap stocks will show performance at par with mid and small-cap stocks. Our belief is that instead of categorising stocks by their market capitalisation, the emphasis should be on the growth potential and fundamental strengths of the companies.
Smallcaps have enjoyed a dream run since March 2023. But it seems that like all good things, even this run is coming to an end. The Sensex to smallcap ratio chart has hit the lowest levels last seen at the peak of the smallcap bull run in 2018. When this ratio is rising, it means Sensex stocks are outperforming. When it is falling, it means smallcap stocks are outperforming. This ratio has touched a 15-year low which suggests smallcaps have limited scope for outperformance now.
Midcaps and smallcaps usually are subject to higher volatility, especially when their valuations are on either extreme. Currently, a good chunk of small and mid-cap stocks is trading at higher valuations. Whenever there is such a scenario, even a small negative news has a larger impact on the stock prices which we witnessed a few days back even though it was temporary. So, yes at least in the near term, we see more valuation comfort in the largecaps and larger midcaps.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.