Nearly 100 small-cap stocks surge 10-50% as positive macros boost market returns

In the broader market, mid- and small-cap stocks attracted strong buying interest, even though their valuations were relatively high.

The market posted better returns in the last two months on the back of positive data points on a weekly basis, while sustained buying by domestic institutions and the possibility of a pause in rate hikes by the US Federal Reserve added to the rally, despite a poor monsoon, a rising dollar, higher bond yields and a surge in crude oil prices.

In this week, the Nifty50 gained 1.97 percent or 384.7 points to close at 19,820, while BSE Sensex added 1.85 percent or 1,211.75 points to close at 66,598.91.

The broader indices continued to outperform this week as well with the BSE Mid-cap index rising 4 percent, BSE Small-cap index 2.2 percent and BSE Large-cap index gaining 2 percent.

"The domestic indices experienced a gradual rally throughout the week, buoyed by strong macroeconomic data such as robust GDP and PMI figures, which painted to a positive outlook for the market. Despite a mixed global trend marked by weak cues, Indian equities remained resilient, supported by this strong economic outlook," said Vinod Nair, Head of Research at Geojit Financial Services.

Global concerns were sparked by a surge in crude oil prices, US jobless claims data for August, weak Chinese service PMI and trade figures, and rising gas prices due to strikes in Australia. However, in the broad market, mid- and small-cap stocks attracted strong buying interest, even though their valuations were relatively high. Moreover, heightened order inflows made sectors like infrastructure and realty particularly attractive to investors during the week.

"The market is now eagerly awaiting data on inflation and industrial production to provide further guidance," he said.

All the sectoral indices ended in the green with the BSE Realty index and BSE Capital Goods index raising 5 percent each, BSE Energy index adding 4.7 percent and the BSE Power index rallying 4.7 percent.

The BSE Small-cap index gained 2.2 percent. MMTC, GTL Infrastructure, National Peroxide, Cochin Shipyard, Bombay Burmah Trading Corporation, Magadh Sugar & Energy, GMR Power, SpiceJet, Vikas WSP, Ashapura Minechem, Transformers and Rectifiers India and Sadhana Nitrochem added 21-50 percent.

"Both the Nifty and the Sensex gained around 2 percent and outperformed most global equity markets. Mid-cap and small-cap indices continue to outperform the large-cap index. Macro sentiments remained volatile as frailties in European and US banks were under focus. Indian equity markets remained concerned about growth slowdown, higher interest rates and valuation even as inflation (especially food inflation) remains elevated both globally and domestically," said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities.

"Most Indices ended in the green. FPI/FIIs were net sellers and DIIs were net buyer during the week. On the economy front, GST collections for July (collected in August) were 10.8 percent YoY higher at Rs 1.59 trillion (June: Rs 1.65 trillion)."

US Treasury yields fell on Friday as investors fretted over the possibility of further interest rate hikes following the release of fresh economic data. Initial weekly jobless claims on Thursday, which came in at 216,000, below the previously expected 230,000. Economic activity in the Eurozone grew by 0.1 percent over the April-June period, compared to the previous three months - a lower rate than initially estimated - and expanded by 0.5 percent in a yearly comparison after a growth rate of more than 1% last year. In Asia, China Exports fell 8.8 percent in August compared with a year earlier, while imports dropped 7.3 percent," he added.

Foreign institutional investors (FIIs) sold equities worth Rs 9,321.41 crore, while domestic institutional investors (DIIs) bought equities worth Rs 4,572.14 crore in this week.

Where is Nifty50 headed?

Jatin Gedia – Technical Research Analyst at Sharekhan by BNP Paribas:

On the hourly chart Nifty has reached the upper end of the rising channel and hence a consolidation is likely in the upcoming week. The range of consolidation is likely to be 19850 – 19670. Daily and hourly momentum indicators have a positive crossover which is a buy signal and thus this is likely to be only a consolidation and in case of a dip it should be used as a buying opportunity.

On the upside we expect 19900 which is around the swing high it touched during July. In terms of levels, 19630 – 19670 shall act as a crucial support zone while 19860 – 19900 shall act as an immediate hurdle zone.

Amol Athawale, Vice President - Technical Research, Kotak Securities:

After a promising reversal formation the Nifty has been holding a higher bottom formation and is comfortably trading above 50 and 20-day SMA (Simple Moving Average) which is largely positive. It has also formed a long bullish candle on weekly charts, which supports further uptrend from the current levels.

For the trend following traders, 19700-19650 would be the key support levels and above the same it could rally till 19900. Further upside may lift the market till 20000. On the flip side, below 19650, the uptrend would be vulnerable and could see a short-term correction till the 50-day SMA or 19550-19500 levels.

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