Nifty Midcap 100 tops 38,000-mark: What’s fueling the rally in broader indices?

Sensex ended the session with a gain of 267 points, or 0.41 per cent, at 65,216.09 while the Nifty50 rose 83 points, or 0.43 per cent, to settle at 19,393.60. Mid and smallcaps outperformed the benchmark on August 21 as the BSE Midcap and Smallcap indices ended 0.87 per cent and 0.71 per cent higher, respectively.

According to analysts, the current strength in broader indices are in a sweet spot to perform better than the large and small cap companies. The mid and small caps also have a relatively higher margin of safety, compared to the larger indices.

Analysts believe it is just a matter of time before the broader indices hit all-time highs. The Nifty, however, is still 3 per cent and the Sensex 3.5 per cent away from the all-time highs hit on July 20. 

Amid the current consolidation, the major global headwinds for markets are come from the rising US dollar and bond yields. On the domestic front, record-high vegetable prices that pushed retail inflation to over one-year high in July, is also a major headwind for commodity and stock markets.

India’s consumer price index (CPI) inflation surged sharply to a 15-month high peak of 7.44 per cent in July 2023, driven by high food and vegetable prices. July CPI print had breached the Reserve Bank of India’s upper tolerance limit of 6 per cent for the first time in five months. The consumer food price index (CFPI) in July also surged to 11.51 per cent – the highest level since October 2020.

‘’The US 10-year bond yield at 4.25 per cent is a major headwind for equity markets since this risk-free return is hugely attractive particularly when CPI inflation in the US is down to 3 per cent….Long-term investors can use market corrections to slowly accumulate high quality growth stocks particularly in banking, capital goods and automobiles,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Notably, the Nifty Smallcap 250 outperformed all major indices clocking gains of 7.69 per cent in July, followed by Nifty Miscap 150 which scored gains of 5.51 per cent during the period. According to a report by domestic brokerage firm Motilal Oswal titled ‘Global Market Snapshot’, the broader indices outperformed major ones including Nify50 and Nifty 500 during July, which gained 2.94 per cent and 3.83 per cent respectively.

In addition, both indices have outperformed the other indices when compared on a three-month, six-month, and on an annual basis. In the last three months, Nifty Midcap 150 rose 18.039 per cent and Nifty Smallcap 250 was up 20.89 per cent.

In the last six months, both indices have clocked gains of 21.93 per cent and 22.60 per cent, respectively. Finally, even on a 12-month basis, both indices rose 26.31 per cent and 29.17 per cent, respectively – clocking the highest gains when compared to other major indices including Nifty 50 and Nifty 500, according to Motilal Oswal.
 

Where is Nifty headed?

“The Nifty index exhibited a positive tone as it maintained levels above the crucial support point of 19,250. A breach below this level could potentially spark unease within the market, causing concerns among investors,” said Rupak De, Senior Technical Analyst at LKP Securities.

‘’However, as long as the index holds above the 19250 mark, there is a potential upward trajectory towards the 19500 level. A confident breakthrough above 19500 has the potential to catalyze a sustained and substantial market rally,” he added.

Updated: 21 Aug 2023, 06:15 PM IST