Investor focus shifts to mid- and small-caps

Market participants are judging that valuations of many blue-chips, large-cap companies are stretched

Shares of mid- and small-cap companies are likely to hog the limelight through the next couple of weeks, with market participants saying the valuations of many blue-chips and large-cap companies are stretched. Fund managers said investors were shifting money from large-cap companies to small ones, amid uninterrupted inflows by foreign institutions.

“There is a lot of portfolio rotation happening. The way the interest is shifting to mid-cap reflects the characteristics of a liquidity-driven market,” said V Balasubramanian, vice-president and fund manager, IDBI Asset Management.

On Tuesday, the BSE mid-cap index rose about one per cent, while the small-cap index gained 0.7 per cent. The benchmark indices — the Sensex and the Nifty — had posted new records last week, as well as during the 75-minute Muhurat trading session on Sunday. During the Muhurat trading session, the Sensex hit a record 21,321.53, while the Nifty posted a record closing high of 6,317.35, exceeding the previous closing high 6,312.45 recorded on November 5, 2010.

Analysts said if investor appetite continued to shift to mid- and small-cap stocks, both the indices might struggle to exceed the newly-achieved records in the near term. “If the Nifty fails to make see a high of more than 6,342 in the next couple of days, a correction of 150 points is on the cards, as the index Nifty is near the overbought region,” said A K Prabhakar, an independent technical analyst.

The absence of key events in the near term would make it tougher for benchmark indices to see sharp moves, especially on the upside.

“There is no news-trigger. Everything is dependent on liquidity,” said Balasubramanian. “We will wait for the next week or so to see a clearer trend.”