More than 40 smallcaps rose 10-40% in a week, but experts are still cautious

Another historic week for Indian markets, but stock-specific action grabbed the limelight. The S&P BSE Sensex climbed mount 38K to hit a fresh record high of 38,076.23 while the Nifty50 came under the striking distance of 11,500 and hit a life-time high of 11,495.20.

Traders preferred to book profits ahead of the holiday-shortened week but the S&P BSE Sensex closed with gains of 0.8 percent, while Nifty50 ended 0.6 percent higher for the week ended August 10. There was a lot of stock-specific action in the small & midcaps, which kept traders busy.

Even though the S&P BSE Small-cap index closed flat with slight negative bias but as many as 46 stocks gave 10-40 percent returns in a week which include names like MBL Infra (up 38%), Ok Play India (up 34%), Vinati Organics (up 27%), Reliance Naval (up 27%), and Kwality (up 27%), among others.

Most of these smallcaps were beaten down in the first six months of 2018 and it seems momentum might be returning, but analysts still advise investors to maintain a cautious approach while putting fresh money into smallcaps.

“Most of small and mid-cap stocks were beaten down by a large quantum. That’s why price move in short time has given such returns. But, if you look at 3-6 months period, stocks will still look at prices way lower than earlier,” Pritam Deuskar, Fund Manager, Bonanza Portfolio told Moneycontrol.

“We feel people will get a decent chance in price recovery but froth and momentum stocks may not recover earlier levels. One can wait for the index correction of 3-4%. If mid or smallcaps do not correct by large quantum, one can buy with staggered manner. Large midcaps are preferred choice and do not overpay the price,” he said.

In the S&P BSE 500 index, as many as 12 stocks have given 10-30 percent return which include names like Vinati Organics (up 27%), Reliance Naval (up 27%), Kwality (up 27.39%), Reliance Communications (up 24%), Indiabulls Ventures (up 14%), VST Industries (up 11.5%), and Welspun India (up 10%).

Indian market gained momentum despite escalating tensions between the US and China and as trade war fears escalate to other countries as well.

President Donald Trump said on Friday he is green-lighting a doubling of steel and aluminum tariffs on Turkey and warned that relations between the US and Turkey "are not good at this time" which resulted in 18 percent drop in the Turkish Lira at one point, the biggest one-day fall since 2001 financial crisis.

Apart from global cues, investors would also watch out for key macro data (WPI & CPI) as well as corporate earnings which are scheduled next week.

“With headline index trading at record highs, some consolidation cannot be ruled out. We expect stock-specific volatility to continue with more corporate earnings scheduled in the next 1-2 weeks,” Jayant Manglik, President, Religare Broking Ltd told Moneycontrol.

“Further, market participants would keep an eye on global developments, especially the US-China trade war, progress of monsoon, currency and crude oil price movement,” he said.

Analysts see some consolidation in this week which could take the index towards its key support levels of 11,410 while on the upside, resistance is placed at 11,495-11,640 levels.

On the technical front, the index, on Thursday, faced resistance near 11,500 mark and the selling pressure continued on Friday as well. Consequently, the Nifty is falling towards the junction of 40-hour exponential moving average & hourly lower Bollinger Band, where a rising trendline is also nearby.

“11,410-11400 shall be the immediate support zone to watch out for. Though the overall trend continues to be positive, the index can get into a consolidation mode before stretching higher,” Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan by BNP Paribas told Moneycontrol.