Nifty, Sensex snap 7-week winning run; analysts see concentrated rally in select stocks

Over the next few months, Nifty and Sensex are expected to outperform large and mid-cap stocks, possibly causing some portfolios to underperform against these indices

Benchmark indices Nifty, Sensex trimmed the day's gains to end higher on December 22. Sensex closed 242 points or 0.34 percent higher at 71,107, and the Nifty shut shop 94.40 points or 0.44 percent higher at 21,350. Both indices snapped the seven-week winning streak to end half a percent lower on a weekly basis.

Gains of nearly 2 percent were seen in Nifty Auto, Nifty IT, Nifty Metal, and Nifty Pharma indices on December 22, while Nifty Bank and Nifty PSU Bank indices saw losses of up to 0.7 percent.

Wipro, HCL Technologies, Hero MotoCorp, Bajaj Auto, Hindalco and Tata Motors were the top gainers on the Nifty, while losers are Grasim, HDFC Bank, State Bank of India (SBI), and ICICI Bank.

According to analysts, Nifty and Sensex are likely to continue their upward trend due to a concentrated rally in select stocks. However, the concern in the market now is the excessive valuations in the mid and small-cap segments.

The current market rise is propelled by retail enthusiasm and consistent investments in mid and small-cap mutual funds, leading to a potentially overheated market. However, this broader market upswing is expected to be short-lived, they said.

Also Read | Pharma stocks rally up to 8% to 52-week highs amid rise in fresh Covid cases

"The 'buy on dips' strategy continues to drive investors during the subdued week. Mid and small caps remain in the limelight, benefiting from ease in oil prices and the anticipation of a potential rate cut in CY24, supported by slower-than-expected US GDP growth and weakness in the dollar, signalling early rate cuts," said Vinod Nair, Head of Research at Geojit Financial Services.

Realty and Auto sectors shine, while PSU banks outperform peers on account of improvements in balance sheets and profitability. Despite a premium valuation, the short-term positive trend persists, supported by a strong revival in FIIs buying & stock-specific actions, according to Nair.

"Heading into the festive season and year-end, we can anticipate a range-bound trade scenario with limited data points," he said.

Over the next few months, Nifty and Sensex are expected to outperform large and mid-cap stocks, possibly causing some portfolios to underperform against these indices, according to Dipan Mehta, Portfolio Manager, Founder Director of Elixir Capital.

Strategically and tactically, it appears that large-cap stocks hold better prospects in the coming weeks and months, he told Moneycontrol. There might be a cooling-off period for mid-cap and small-cap stocks, with valuations warranting a closer look once the earnings season begins.

As many mid-cap and small-cap stocks have already risen from the last earnings season to the current one, any discrepancy between actual performance and market expectations during this period could result in disappointment and subsequent corrections, Mehta added.

Disclaimer: The views and investment tips expressed by investment 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.