After dropping to over four-year low in March following the coronavirus outbreak, every sector has participated in the recovery that has seen benchmark indices surpass highs of January. The market rallied more than 70 percent from the March lows to hit a new high on November 25. The Nifty midcap has climbed more than 70 percent and smallcap surged over 82 percent during the period.
In September, the Nifty corrected around 1,000 points but has since bounced back to rally more than 20 percent, while the midcap index has gained 19 percent and smallcap 15 percent.
The continuous flow of foreign money, positive news on COVID-19 vaccine, recovery in the economy, better-than-expected September earnings and government measures have lifted the mood.
"The Nifty is now above the 13,000-mark. It is now reaching more or less the upper end of our comfort zone with valuations at 20xFY22E. We are therefore turning cautious on the index from now on even though liquidity and momentum remain supportive," said Dolat Capital in a report.
Earnings commentary had turned stronger, especially in the auto ancillaries, chemicals, cement, pharma and infra, it said. "Hence our expectation is that the mid/ small-cap indices will be better placed versus the largecaps over H2FY2021. Near-term valuations have spiked on the recent rally but are still below the long-period averages," Amit Khurana, Head of Equities, said in the report.
The brokerage also expects significant operating leverage to play out on better utilisation as well as lower interest cost.
The Nifty midcap is still 15 percent away and smallcap 52 percent away from their peaks hit in January 2018.
Dolat Capital believes that the current lead indicators on earnings and sentiment are supportive of a significantly new high over the next 18 to 24 months for the midcap & smallcap indices.
To participate in the expected rally, bet on these 35 midcap and smallcap stocks:
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