Recovery In Small-, Mid-Caps Alleviate Froth Concerns For Investors, Analysts

The overall trend seems to be positive but one must be selective with the stock selection, says Sameet Chavan of Angel One.

<div class="paragraphs"><p>(Source: Envato)&nbsp;</p></div>
(Source: Envato) 

Investors have dismissed market regulator's concerns of froth in the small and mid-cap space as the benchmarks have gained over their previous highs.

The gauges for the small and mid-cap stocks have shown a strong recovery from their lows of March 13, mainly led by the small-cap index. The rally in the Nifty Smallcap 250 from the lows of March 13 saw gains of about 12% till Wednesday.

During the selloff in March, the Smallcap 250 and the Midcap 150 lost about 11% and 6.2% respectively.

The undertone in the broader markets has turned quite bullish. The last two weeks has seen a strong correction in the SMIDs space and there has been much optimism surrounding the markets, according to Sameet Chavan, head of research at Angel One Ltd.

"I have a very bullish approach in the broader market and will be adamant about having an aggressive approach with a buy-on-dips strategy," he said. The overall trend seems to be positive but one must be patient and be selective with the stock selection, Chavan said.

The selloff was triggered with the Securities and Exchange Board of India's comments regarding froth in the mid-and small-cap space, and concerns over broader valuations.

SEBI asked mutual funds to proactively protect investor interest amid "froth" building up in the broader end of the Indian equity market. The market regulator has asked the asset management companies to be cautious and consider moderating flows and rebalancing portfolios.

The benchmarks were also hit as investor sentiment was hurt by the valuations of the market in general and the SMIDs in particular. The NSE Nifty 50 and the S&P BSE Sensex fell over 3.5% and 3.2% respectively during the selloff in March. The indices have recovered so much that they are staring at fresh life highs every session.

After the breakout of 22,500 in the Nifty, broader markets and the benchmark indices will see a huge upsurge, according to Chavan.

The markers have been witnessing consolidation with profit-booking, according to Sudip Bandyopadhyay, group chairperson at Inditrade Capital Ltd.

The trajectory is definitely positive, with all kinds of dips getting bought into. Under these circumstances, there are few triggers like corporate results, monsoon forecast and election that could propel the broader markets upward, Bandyopadhyay said.

During the recovery, Cochin Shipyard Ltd. and Action Construction Equipment Ltd. saw the most gains of 47% and 45.6% respectively. From the low on March 13, Swan Energy Ltd. and BSE Ltd. rose over 40% each.

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