Small And Mid Caps Lead Year-End Rebound
Small and mid-cap indices jump the most in Santa rally.
Small and mid caps led the rebound since the stock market's October low as crude prices fell, the rupee recovered and the liquidity concerns eased.
Nifty Smallcap 100 and Midcap 100 indexes have risen 12 percent each since Oct. 9. That compares with a 6 percent gain in the benchmark Nifty 50 index during the period.
The rise in small and mid-cap indices in the past two months is because the space was technically oversold and valuations did play a catch up, Hemen Kapadia, research head at KR Choksey, said. These indices were battered since the beginning of the year, he said.
Indian equities fell as the rupee weakened and there was a fear of a trade war between the U.S. and China. A change in mutual fund classification added to the selloff. And a liquidity crunch triggered by IL&FS defaults amplified the rout. As these concerns eased, the broader indices rallied more.
Graphite electrode maker HEG Ltd. has been the best performing small-cap stock. It surged 22 percent since Oct. 8 due to the rising demand of electrodes and anti-pollution controls in China. It contributed 37 points to the small-cap gauge, followed by multiplex chain PVR Ltd.
Adani Power Ltd. and Tata Power Ltd. cumulatively contributed 115 points to the Nifty Midcap 100 Index as India’s Central Electricity Regulatory Commission’s draft norms proposed keeping a 15.5 percent return on equity for generator and transmission companies for the five years starting April 1. Federal Bank rose the most since May 10 as the lender’s profitability and asset quality improved.
Still, overall it has been a gloomy year for investors in small and mid-cap companies. The two indices have fallen 15 to 29 percent year-to-date.
The mid-cap index, too, is now on the verge of a breakout, according to Sameet Chavan, chief analyst-technical and derivatives at Angel Broking. “We reiterate that our markets are likely to witness a ‘Santa Rally’ in coming days. Traders should focus on individual stocks.”