BSE Mid-cap indices snap 12-week winning streak since August 2020

In the aftermath of the pandemic, the BSE MidCap Index had risen for 14 consecutive weeks, clocking 29% gain

The S&P BSE MidCap Index’s 12-week gaining streak ended last week. Since bottoming out in June, the index, tracking the performance of 100 key mid-cap companies, rose 22 per cent through an uninterrupted 12-week winning run — its longest since August 2020. 

In the aftermath of the pandemic, the BSE MidCap Index had risen for 14 consecutive weeks, clocking 29 per cent gain.

The index was on course to post its 13th weekly advance. However, a near 3 per cent drop on Friday interrupted the winning run. The BSE MidCap Index ended 1.5 per cent lower last week, still outperforming the Sensex that fell 1.6 per cent.

The Nifty Midcap 100 Index, a similar gauge constructed by the National Stock Exchange, also snapped its 12-week gaining streak last week — its longest in at least 15 years. Between June 19 and September 11, the index clocked 24 per cent gain.

The latest surge in the mid-cap index mirrors gains in the benchmark Nifty and Sensex indices. Since June lows, most stocks have gained sharply on optimism that the worst of inflation is behind us and global central banks will go slow on subsequent rate hikes.

However, a recent inflation reading in the US has quashed these expectations and triggered a fresh bout of sell-off.

The S&P 500 Index of the US plunged 4.8 per cent last week. Most investors are now pricing in a 75-basis point (bp) hike by the US Federal Reserve (Fed) next week, with some even fearing a 100-bp hike. The Fed has already hiked rates twice by 75 bps.

The Indian market has shown resilience to the latest turmoil in world markets. However, experts warn that Indian markets cannot remain unscathed if selling pressure intensifies globally.

After the latest surge, the Nifty Midcap 100 trades at nearly 28.3x its estimated one-year forward earnings — up from 19x in June. The valuation expansion has been far more than the Nifty, which is now available at 20.3x, compared with 17.4x in June.

“Ideally, investors should compare the valuations of mid-cap indices with large-caps like the Nifty. Mid-caps tend to trade at a discount to large-caps. When there is excessive exuberance, the discount starts narrowing, and mid-caps start trading at a premium to large-caps,” observes Ajay Bodke, an independent market analyst.

The mid-cap-focused indices have more beta than the benchmarks. To paraphrase, the Nifty Midcap 100 Index tends to rise and fall more than the Nifty50 Index.

“Any rise in risk aversion impacts mid-cap valuations disproportionately higher than mega-caps and large-caps as investors embrace the safety and familiarity of large, known market leaders,” adds Bodke.