Smaller stocks outperform on D-Street

Market could rally further if there is some concrete government action in the coming weeks, say experts

With key benchmark indices remaining range-bound, the action seems to have shifted to the small-and mid-cap counters. Following the improvement in sentiment among market participants, investors and traders have flocked to these counters with expectations of high returns.

The BSE small-cap and mid-cap indices, this week, rallied 3.1 per cent and 4.4 per cent, respectively, even as the 30-share Sensex inched up just 0.6 per cent.

As there is little legroom for the benchmark indices to rally from the current levels due to the absence of a trigger, the smaller stocks have started hogging the limelight, said market experts.

“Whenever the market improves, people shift their focus to mid- and small-cap stocks. These stocks see the maximum de-rating, but also gain sharply in quick time,” said Deven Choksey, managing director of KR Choksey Securities.

Added Ambareesh Baliga, chief operating officer at Way2Wealth Brokers: “The Sensex has seen a decent uptrend in the past one month. The small- and mid-cap stocks have rallied as their valuations had fallen to abysmal levels.”

Smaller stocks rallying after blue chips is a normal trend, but these cycles are getting shorter, said Baliga.

The Sensex, after rallying close to 10 per cent in June, has traded flat this month, while these smaller counters have seen a lot of action. More than 100 stocks out of 800-odd stocks from these indices have gained at least 10 per cent in the past four trading sessions.

“Based on news triggers, high networth investors (HNIs) have taken aggressive positions in smaller stocks in the past few weeks on expectations of 20-30 per cent returns,” said a dealer at a retail brokerage.

Interestingly, despite the benchmark market remaining flat, the underlying market strength has been positive going by the advance-decline ratio. Almost two stocks have rallied for every decline on the BSE this week.

The Sensex has gained 13 per cent since the start of the year, while the mid- and small-cap indices have gained 23 per cent each.

Experts said the market could rally further if there is some concrete action from the government in the coming weeks.

“Crude oil prices have come down and the monsoon is slowly catching up. The only missing block is action on reforms. If that happens, the market we will be on a very strong wicket,” said Baliga.

Added Choksey: “The overall mood in the market is much more conducive now. We believe the second half will be better than the first half for the market if there is action on the policy front.”