The BSE mid-cap index with gains of 10.77% in July outperformed the Sensex, which had seen gains of 8% in July 2022. In August it has rise 2.10% almost in line with the 2.23% gains by the Sensex.
The small caps are following suit. The BSE small-cap index was up 9.16% in July and in August has gained 2.31%, which is again better than the Sensex.
This comes as investor sentiments have improved and the belief is that US interest rates are close to peaking because of slowing growth in the US and other developed economies. This is leading to gains by the indices and improved confidence among investors. The move in the Indian markets mirrors movements across most global markets, which have also seen positive returns for the month.
“In this rally, mid-caps have outperformed the Nifty 50, which is a large-cap index. The outperformance for mid-caps during the month is probably because of a catch-up rally with large caps, which have outperformed mid-caps in the last few months," said Nishit Master, portfolio manager, Axis Securities. Experts are of the view that India’s economic growth remains strong and encouraging economic revival is prompting investors to take bets on riskier segments such as mid-caps and small-caps.
“Under the current market circumstances, we believe investors have shifted from a more conservative large-cap-oriented stance to a riskier mid-cap stance. Investors see growth coming from smaller companies," said Shrikant Chouhan, head of equity research, retail, Kotak Securities Ltd.
Sectors such as logistics, building materials, pipes, infrastructure, and realty have been in demand and Chouhan believes the headroom for smaller companies to grow is much larger than that for bigger companies.
Besides, many mid-cap companies had completed capacity expansions and are sitting on lean balance sheets, generating healthy cash flows, and trading at reasonable valuations after the correction. Investors should identify such companies and invest in them, according to analysts.
Valuations are now below those of large caps and the breadth of investment opportunities is significant, said Vikram Kasat, head, advisory, Prabhudas Lilladher. Kasat remains bullish on the domestic investment cycle, which includes capital expenditure.
