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Teji Mandi Explains: What’s beating the midcaps?

04:39 PM Oct 22, 2021 | Teji Mandi

A few days back, the bullish uptrend received big cheers from the investing community. A lot of stocks emerged as multi-baggers despite poor credentials. Sensex and Nifty recorded all-time highs, and investors jumped on the wagon to make quick money, but only a few smelled the hint of irrationality in the air. Whatever that went up in the last few months for no reason is not coming down like falling knives.

Midcaps Madness

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Midcaps were trading at high valuations and still witnessed high momentum. It was only a matter of time that the market had to be corrected with profit booking. This week, midcaps have corrected over 10%. Post COVID-19, the midcaps and smallcap stocks surpassed the benchmark return by around three times. When the returns went up so fast, the downfall also came in quickly. Despite the midcap madness, there are some stocks from the banking, FMCG and IT space that have continued to do well. This only proves that the fundamentally strong companies continued to survive.

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BSE’s Surveillance Rule

The Bombay Stock Exchange in the month of August clarified on the new surveillance rule that curbs the excessive price movement in securities listed on BSE. This alleviated worries for the investors and traders who enjoyed enormous profits. To stop this, BSE said stocks that have rallied six times in six months, 12 times in one year, 20 times in two years and 30 times in three years will face weekly, monthly and quarterly price curbs. This was done to stop market speculation that triggered stocks to move up/down. While BSE continues to come up with strict rules, the investing community continues to be uncomfortable because the game has changed.

Panic Selling In The Short-Term

This year the market exuberance was on a completely different tangent. For instance, the Nifty50 index this year rose 32%, while the midcap index surged about 52%. This makes up for a curious case, because the macro numbers are still not strong enough and the current inflation is a big worry for the country. Amidst all these tensions, the midcap rally was not justified. Until the market is fully corrected, the stocks will continue to be under pressure, and a panic selling is expected in the short term. However, market analysts continue to remain confident of India’s growth story in the long term.

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