Nifty Midcap and Smallcap indices touch their lifetime highs
The Nifty Midcap and Smallcap indices reached their all-time highs on November 30. Analysts credit this rise to positive global cues, easing bond yields, and a weaker US dollar. However, they caution that the stocks in these indices might not see much more growth from hereon because they are already quite costly at the moment. According to Vinod Nair of Geojit Financial Services, mid-cap and small-cap stocks are trading around 10-20% higher than their usual long-term averages.
Today's performance of various small-cap and mid-cap indices
On November 30, the Nifty Smallcap 100 and Nifty Smallcap 250 jumped by about 1.35% and 1.24%, respectively. The Nifty Midcap 100 and Nifty Midcap 150 rose by around 0.85% and 0.95%, respectively. Since their lows in March, the Smallcap 100 has gained 63.6%, and the Midcap 100 has increased by 47.2% to date.
Largecaps still have plenty of catching up to do
Nair predicts that mid-caps' outperformance over large-caps will narrow in the next six months. He pointed out that large-cap earnings growth in H1 FY24 showed strong results, with profit after tax (PAT) growing in double digits, but this was not reflected in the Nifty100 index. "There is plenty of catch-up left," he added. Deepak Jasani, head of retail research at HDFC Securities, also expressed concerns about expensive valuations in mid-cap and small-cap sectors.
What's driving the rally in small-cap and mid-cap stocks?
Year-to-date (YTD), the Nifty Smallcap 250 index has surged over 38%, while the Nifty Midcap 150 index climbed over 33%. Analysts at CLSA noted that further significant outperformance may be challenging as relative valuation is well above +1 standard deviation of the long-term average premium. They added that the rally may have been driven by strong investor preference for sectors with a large portion of stocks in small- and mid-cap categories.
