In November, both indices have seen a significant increase of over 8 percent, outpacing the benchmark Sensex which rose by 5 percent. However, some analysts are warning that with valuations already stretched, there may be limited upside from here on. Indian equity markets have been on an upward trend in November with many indices reaching new lifetime highs. The BSE Midcap and BSE Smallcap indices also saw record highs on November 30. However, analysts warn that the broader indices may have limited upside from here due to stretched valuations.
Vinod Nair, head of research at Geojit Financial Services, notes that mid- and small-caps in India have high valuations, around 10-20 percent above the long-term average. Large-caps, however, remain around the average, with a better risk/reward ratio. Nair predicts that the outperformance of midcaps will narrow over large-caps in the next six months.
Understanding the rally in small-, midcaps so far in 2023: Small- and midcaps have surged this year, with the Nifty Smallcap 250 index up over 38 percent and the Nifty Midcap 150 index climbing over 33 percent, compared to the Nifty50 index’s 10 percent rise.
Midcap, small-caps: The way forward: Narender Singh of Growthinvesting.in believes that mid- and small-cap outperformance depends on factors like state elections, global conflicts, crude oil prices, and interest rates. Kedar Kadam of Waterfield Advisors predicts that though small- and mid-cap stocks may continue to perform well, many are expensive and the breadth is expected to narrow. Tanvi Kanchan of Anand Rathi Share and Stock Brokers is positive on the manufacturing, FMCG, and travel and tourism sectors.
