BSE midcap surges over 7%, most since November; smallcap jumps 10% in June

In the current month till date, BSE MidCap has gained 7.4 percent, its biggest jump since November 2023. BSE Smallcap has gained 10.2 percent, its highest monthly gain since February 2021

BSE Midcap and Smallcap indices continue to surge despite concerns related to valuations. In June, the BSE Midcap index fell in just four sessions: June 4, June 19, June 21, and June 25. Similarly, the BSE SmallCap index experienced declines on only three days: June 4, June 19, and June 25. On all other days, both indices traded higher.

In the current month till date, BSE MidCap has gained 7.4 percent, its biggest jump since November 2023. BSE Smallcap has gained 10.2 percent, its highest monthly gain since February 2021. Meanwhile, the Sensex and Nifty are up around 5.3 percent each in June till date.

Further, the midcap barometer has lost ground only on three occasions so far this month. Similarly, the Smallcap index saw declines in only two sessions but gained ground in all other sessions.

Incidentally, if the data from April 2023 is taken into account, the BSE Midcap index has lost ground only in October and December 2023, while the BSE SmallCap index declined in October last year, followed by February, March and May this year.

More importantly, both the broader indices have surged nearly 92 percent each since April last year – significantly higher than the Sensex and Nifty gain of 31 percent and 35 percent, respectively.

Rajesh Palviya from Axis Securities believes that if the Sensex and Nifty can sustain their gains, the rally could extend further, with midcap and smallcap stocks likely to outperform as long as the Nifty stays above 23,000.

He further highlighted that the current market is experiencing a super bull run, where midcap and smallcap stocks are outperforming and while indices like Nifty and Bank Nifty appear to be consolidating recently, it is triggering increased retail investor interest towards midcap and smallcap segments.

Market participants also believe that expectations are high due to the anticipated positive budget and policy actions by the government, particularly in sectors like fertilisers, sugar, railways, infrastructure, defence, capital goods, and power.

Ahead of events like the GST meeting and budget, traders have driven sharp gains in midcap and smallcap stocks during June, say market participants.
Interestingly, while there has been a lot of chatter around midcap and smallcap stocks post the developments at Quant Mutual Fund, analysts believe the event is unlikely to cause a significant decline in the mid and smallcap universe.

While some stocks held by Quant MF may face volatility or redemption pressure, the broader market sentiment remains strong, indicating no substantial downturn in mid and smallcap stocks.

Analysts further expect bullish momentum to persist in mid and smallcaps, despite warnings and concerns about high valuations, as the market continues to show resilience and potential for further outperformance.

Siddarth Bhamre, Head of Research at Asit C Mehta Investment Intermediates, commented that the current market trend is similar to the pre-election volatility, where there was a rise just before election results followed by a significant correction afterward. Monthly data reflects this election impact, but looking at longer-term returns over 52 months, the averages are stabilising, he said.

He cautioned against generalising valuations in midcap and smallcap stocks, suggesting instead to evaluate each stock individually as the trend shows that there is a shift from broad-based market rallies to more selective stock-specific movements.

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