The US Federal Reserve's dovish switch for 2024, signalling multiple rate cuts for the new year and a global rally pushed Indian markets to record highs on December 14 morning . The gains also saw analysts betting on largecaps finally catching up with the impressive run that mid-and smallcaps have had in recent times.
"Largecaps will now participate in this bull run and catch up with the strong rally exhibited by mid and smallcaps," said Deven Choksey, Managing Director at KRChoksey Holdings.
The exuberance in small and midcap pockets seemed stretched, he said, adding investors were not being mindful of valuations and were rather "jumping and pumping money" in these segments.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, too, said "there was a bubble in midcaps and smallcaps".
"The midcaps and smallcaps were trading with 25 percent premium versus historical averages. The problem with high valuations are that markets are vulnerable if there is an unforeseen event," he said.
In the morning trade, the 30-pack Sensex touched a record high of 70,540 and the broader Nifty, too, climbed a new peak of 21,189.
Broader indices such as the BSE midcap and BSE smallcap, too, scaled fresh new highs at 36,167 and 41,983, respectively.
The sectoral indices that hit record highs in morning deals included BSE auto, BSE bank, BSE capital goods, BSE metals, BSE services, BSE commodities, BSE consumer discretionary and BSE financial services.
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Banking stocks to reap benefits
With the US central bank hinting at multiple rate cuts starting from 2024, analysts said banking stocks would benefit the most out.
"Foreign institutional investors (FIIs) will trace back stocks that they have reduced their holdings back in the day. This means banking stocks may benefit the most, as they were the top laggards when interest rate hike had started," Vijayakumar said.
Bank Nifty has surged 9.5 percent this year as against a 15 percent rally in the benchmark Nifty, Bloomberg data shows.
Among individual stocks, AK Prabhakar, Head of Research at IDBI Captial listed out banking names that were fairly undervalued versus historical averages. "We are bullish on Union Bank, Bank of Baroda, Canara Bank, HDFC Bank, and City Union Bank," he added.
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