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Mid & Smallcap indices hit record highs along with Nifty50. Stay cautious, suggest experts

Mid & smallcap stocks have been in limelight largely on account of two years of underperformance, strong growth prospects, growing risk appetite, robust earnings, and cheaper valuations compared to large-cap peers

May 28, 2021 / 11:24 AM IST

Small & Midcap stocks moved in tandem with Nifty50 hitting fresh record highs on May 28. The Nifty50 hit a fresh record high of 15,455 on Friday surpassing the previous record high of 15,431 recorded on February 16.

The Nifty Midcap 100 index, which hit a record high of 25,858 in morning trade, has already rallied over 23 percent so far in 2021 while the Nifty Smallcap 100 index hit a record high of 9,389.30 - up over 31 percent so far this year.

Mid & smallcap stocks have been in limelight largely on account of two years of underperformance, strong growth prospects, growing risk appetite, robust earnings, and cheaper valuations compared to large-cap peers.

In terms of valuations, the Nifty Midcap100 P/E ratio now trades at a 10% discount to largecaps at 18.1x, which is below its historical average, according to a Motilal Oswal report.

Stocks that are leading the rally in the Midcap space on Friday are Jindal Steel, Vodafone Idea, SAIL, IDBI First Bank, and Trent.

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Stocks that are gaining the most in the Smallcap index are Hind Copper, Metropolis, Deepak Nitrite, DCM Shriram, and Laurus Labs.

What should investors do?

Experts advise investors to trade cautiously after the recent rally. The indices have already more than doubled from March lows and many stocks in the small & midcap space have given multibagger returns in the same period.

“Risk appetite is back and broader markets tend to do well in such a phase. It would be advisable to put some cap on the exposure for the mid-caps and small caps and do some filter check on the cos to avoid major drawdown risk,” Hemang Jani, Head Equity Strategist, Broking & Distribution, Motilal Oswal Financial Services told Moneycontrol in an interview.

History suggests that in a frenzied move, all stocks rise irrespective of fundamentals, caution experts but there are opportunities.

“Investors need to be careful where they are investing. History suggests that in a frenzied move, all cats and dogs also move in the same direction. However, the opportunities are there,” Sandip Sabharwal of Asksandipsabharwal.com said.

“Companies focused on investments and capital goods are still under-owned and are available at reasonable valuations. These are various segments where investors can focus on. Select companies in pharmaceuticals, chemicals, agri field etc. are also doing well and many are post-COVID recovery plays,” he added.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.



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Kshitij Anand is the Editor Markets at Moneycontrol.
first published: May 28, 2021 11:24 am
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