Nifty Midcap 100 index hits record high, crosses 40,000-mark; will it rise further?

Even as headline indices have started consolidating after their record-high run, the midcap index has continued to garner investor interest, touching new highs. Just in today's deals, the Nifty Midcap 100 index hit another record high of 40,257.90, breaching the 40,000 mark for the first time ever. It has added over 6 percent in the last 1 month as against a flat Nifty. August was the 6th straight month of positive returns for the index.

It has advanced 27 percent this year so far as well as in the last 1 year, giving more than double returns versus the benchmark. In comparison, the benchmark Nifty is up 8 percent in 2023 YTD and 10.6 percent in the last 1 year.

From its 52-week low of 29,200.20, hit in March 2023, the midcap index has surged 38 percent.

August was the 5th straight month of outperformance for the midcap index, rising 3.7 percent as against a 2.5 percent decline in Nifty. The midcap index has been positive in 6 of the 9 months so far this year. It was in the red in the first 3 months of the year. It rose the most in May, gaining 6.19 percent and shed the most in Jan, down 2.64 percent.

Most experts noted that mid and small-cap stocks have performed better than largecaps in recent months. After correcting earlier this year, the broader market stocks had favourable valuations which led to rising investor interest. But now that valuations of mid and smallcaps have improved, investors can take a stock-specific approach to accumulate more stocks from this space, they advise.

Constituents

In the last 1 month, Trident has been the top performer in the Nifty Midcap 100 index, rising over 32 percent, followed by Linde India, up 30 percent. Meanwhile, JSW Energy, Persistent Systems, Trent, Escorts, Zee Ent, Sun TV, and Coforge rose between 15 and 26 percent.

However, among losers, only 2 gave double-digit negative returns. Adani Wilmar shed almost 12 percent, making it the top dragger in the Nifty Midcap index, followed by Alkem Labs, which lost 10.69 percent in the last 1 month. Apart from this, Honeywell Automation and Astral fell 7.7 percent and 5.9 percent, respectively.

Outlook

Arvinder Singh Nanda, Senior Vice President, Master Capital Services

The Nifty Midcap index crosses the psychological 40,000 mark, gaining nearly 35 percent in the last six months, while the smallcap index soars above the 12,000 mark to capture around 40 percent gain since March 2023. Despite this humongous gain in prices in such a short span of time, we are still more optimistic about both indexes as growing risk appetency will continue to buoy both segments. Following the improving economic health and domestic developments, investors turned to midcap and smallcap stocks as they are often more closely tied to economic growth than large-cap stocks and offer lucrative returns. Apart from that, improving liquidity in these stocks further fuels investor's confidence to invest more in midcap and smallcap sectors.

Parth Nyati, Founder at Tradingo.

The midcap segment is experiencing a significant upswing due to several key factors. Foremost among these is the robust economic outlook in India, which is fueling investor optimism. This positive sentiment is further amplified by a substantial influx of domestic liquidity actively seeking opportunities in the market.

Notably, midcap and smallcap mutual funds are currently witnessing a surge in inflows as investors flock to these segments. Moreover, Portfolio Management Services (PMS), High Net Worth Individual (HNI) investments, and innovative products like Smallcase are all contributing to the growing momentum in the midcap and smallcap space.

The broader market currently exhibits signs of being overheated, with a limited margin of safety in the short term. This heightened risk is underscored by the fact that any negative catalyst could potentially trigger significant profit-taking. It's noteworthy that the market appears to be disregarding the adverse impact of a weak monsoon at the moment.

Furthermore, numerous stocks are trading at significantly elevated valuations compared to their historical averages. Consequently, investors would be prudent to exercise caution in the near term, as these elevated valuations could make them susceptible to market corrections.

Nevertheless, it's important to maintain a long-term perspective, as the overall outlook remains optimistic. While the short-term environment may be characterized by volatility and potential downside risks, the fundamentals supporting the market's growth potential over the long run remain intact. Therefore, strategic investors should continue to focus on their long-term investment objectives while staying vigilant in the current market conditions.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services

Mid and smallcaps are risky in the short run but they outperform in the long run. Presently mid and small-cap valuations are a bit stretched. That’s why many small-cap funds have stopped accepting lumpsum investments. This is a red flag. But SIPs in this segment can be continued if investors have a time horizon of more than three years.

Hemang Kapasi, Head of Equities, Sanctum Wealth

Given the significant run-up in the last 5 months, some consolidation in the mid and smallcaps can’t be ruled out. However, the consolidation may not be a decisive reversal of the trend and would probably be a short-term breather, in which the index will not give much back while time correcting for the fundamentals to catch up.

Smallcap and midcaps always outperform in risk-on rallies. On the flip side, they also give back more in bad times. In the absence of any major macro shock, the outperformance in the segment shall continue this year.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.