Weakness in midcaps, smallcaps may extend further. Good time to buy?
Premium- The BSE midcap index is down 4% from its highs of this month while smallcap index has corrected 7%
Indian stock market benchmark indices Sensex and Nifty ended higher today in volatile trading but midcap and smallcap stocks continued to remain under pressure. BSE midcap and smallcap indices fell 0.9% and 1.5% respectively. And some analysts say that the underperformance in midcap and smallcap stocks are likely to continue for some time.
“Midcap and Smallcap stocks are going through a tough time in August after a stellar run in Jun and July. We are in a classical bull market where this kind of correction will be part of this journey and I believe this kind of correction is healthy for the market because the market is not charitable enough to make easy money. We are in a shakeout phase which is taking out excess or weak hands from the market so that market becomes light to continue its bullish momentum. Technically, the Nifty midcap index and BSE Smallcap index didn't fall below their 100-DMA for the last one year therefore uptrend will remain intact till they trade above their 100-DMA and this correction can be considered as a buying opportunity in quality midcap and smallcap names," says Santosh Meena, Head of Research, Swastika Investmart Ltd.
The BSE midcap index is down 4% from its highs of this month while smallcap index has corrected 7%.
“A clear trend in the market is the weakness in the broader market, which is likely to continue. Froth is getting removed from the broader market and also from the IPO market. This removal of froth is a healthy and desirable trend," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Vinod Nair, Head of Research at Geojit Financial Services, says investors should utilize the ongoing correction in broader markets to accumulate quality stocks at lower levels.
"Heavy selling continued in small and mid-cap stocks, while headline indices traded positive due to strong support from IT stock and positive global peers. The key factor for the correction is the good performance during 2020-21 leading to peak valuations while liquidity is expected to normalise in the future. The ongoing correction will provide an opportunity for long-term investors to re-enter quality stocks," says Vinod Nair, Head of Research at Geojit Financial Services.
The blue-chip NSE Nifty 50 index ended 0.28% higher at 16,496, giving up gains after hitting 16,592 at day's high.
“The index continued to face resistance at the 16600 level. We need to get past this to scale higher to 16800-16850 which should be the next target for the Nifty. On the downside there is good support around 16350-16400. Until we do not break this, traders can accumulate long positions for higher targets," said Manish Hathiramani, Proprietary Index Trader and Technical Analyst, Deen Dayal Investments.
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The Nifty IT index ended up 1.70%, led by a 4.6% jump in shares of MindTree and HCL Technologies, which gained 4.09% after it reported a contract with global reinsurer Munich Re.
"The market is expected to remain volatile with weakness seen in Midcaps & Smallcaps. Investors are advised to remain cautious, says Rahul Sharma, Co-Founder, Equity99.
Cement maker Nuvoco Vistas Corp. closed about 7% lower on its first day of trading. The shares slumped to ₹531.30, after being sold for ₹570 rupees apiece in the initial public offering. CarTrade had also made a weak debut on Friday.
S Ranganathan, Head of Research at LKP securities, said, “The broader markets witnessed profit booking today and many HNIs looking for listing gains have been caught on the wrong foot in the recent primary market offerings. Several midcap names across sectors were seen wilting under selling pressure in late afternoon trade today."
“Indian markets are currently dancing to global tunes and we expect this trend to continue in absence of any major domestic event. Besides, the upcoming derivatives expiry of August month contracts and continuous fall in the broader markets would keep the participants on the edge. Amid all, we reiterate our cautious view and suggest keeping positions on both sides. Investors, on the other hand, can consider accumulating stocks that are now available at good bargains," said Ajit Mishra, VP - Research, Religare Broking Ltd. (With Agency Inputs)
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