Mid, smallcap indices can dip up to 9% from here; analysts turn cautious

Historically, the combination of narrowing earnings differential, high valuations and prolonged outperformance, Nuvama said, has led to a large period of underperformance for SMIDs (2018-19)

The rally in the small-and midcap indices (SMIDs) is showing signs of fatigue amid a sharp rebound from April lows in the backdrop of tepid earnings growth and high valuations, suggest analysts. These indices, technical charts hint, may drop up to 9 per cent from the current levels.

 

Nifty/SMIDs have bounced 12 per cent / 20 per cent from April low amid earnings downgrades and continuing economic slowdown. This, said analysts at Nuvama Institutional Equities, has led to an unprecedented wedge between growth and valuation—with the BSE 500 median PE at 40x, while trailing median earnings growth is just 9