Landon Capital

The Nifty Midcap 100 index gained over a percent Tuesday to hit a record high led by strong gains in midcap counters. The index hit a high of 33,044.80 against the previous close of 32,709.40. A total of 79 stocks in the index witnessed gains, while 21 stocks fell.

Among midcap stocks, major rally was seen in Astral gaining more than 8%, Tube Investment of India rallying 5.7%, Aurobindo Pharma up over 4.5%, while Trident, Indian Hotels Company and LIC Housing Finance gaining over 3% each.

The Nifty Midcap 100 index is up 4.78% YTD, while it has rallied nearly 7% in the last one month, outperforming the benchmark Nifty50 index that gained 1.5% YTD and 3.07% in one month period.

This outperformance in the midcap stocks comes amid investors’ renewed interest in these pockets as valuations seem to become appealing. Strong performance by many of these small and midcap companies also attracted investors’ money.

After sustaining losses during the Jan-Mar quarter of 2023, the Indian equity markets have staged partial recovery since April. The benchmarks – Nifty and Sensex – have benefited from the signs of improving prospects despite global recessionary concerns. The Indian economy showing resilience in the face of global weakness attracted global investors, which forced short-covering. Markets appeared to have entered oversold territory then.

“The midcap and smallcap stocks took investors beating for a long time. The relative valuations now seem to be at a discount,” said Avinash Gorakshakar, Director Research, Profitmart Securities.

Gorakshakar believes huge fund houses that are seeking to generate alpha in the market are now shifting their money towards tier II good quality small- and mid-cap companies.

“Many of these companies have delivered stellar earnings over the recent quarters. We are witnessing value buying in this segment,” Gorakshakar added.

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Expressing similar views, Kunj Bansal of NISM said that the valuations in this market segment look attractive.

“The earnings here are growing and the investors’ incremental money is flowing into this segment. While valuations are at good levels, institutional investors are looking to diversify their portfolio in mid and smallcaps amid expectations of low potential returns from largecaps,” Bansal said.

Analysts believe domestic facing good quality midcap and smallcap stocks in capital goods, auto ancillaries and cement sectors to perform well going ahead.

Meanwhile, as per the latest data released by Association of Mutual Funds in India (AMFI) for the month of April, highest inflows in the equity fund category were seen in Small Cap Fund at 2,182.44 crore, followed by Mid Cap Fund at 1,790.98 crore.

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On the technical front, the Nifty midcap and small cap indices recorded a breakout from four month’s falling channel indicating a revival in midcaps.

ICICI Direct expects a catchup in midcap and small cap segment in coming month backed by stronger breadth readings and sectoral churn.

“In tandem with the benchmark, the Midcap index ended the corrective phase after four months of decline and has formed a higher high higher low on monthly charts. It witnessed a channel breakout signaling resumption of up move and further upsides in coming weeks,” ICICI Direct said in a note.

It expects the midcap index to witness supportive efforts in coming weeks and pave the way towards the 80% retracement of the December 2022-March 2023 decline around 32200 levels.

The brokerage advises investors to use any volatility in this month to their advantage to build quality portfolios.

At 11:30 am, Nifty Midcap100 index was trading 0.87% higher at 32,995.60, while the benchmark Nifty50 was trading 0.22% lower at 18,359.15.

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