Broader markets' rally is here to stay

The rise in mid- and small-cap stocks has been meteoric since their June lows.

While at the index level, the Nifty Mid Cap and Small Cap indices have jumped over 20% since then, individual stocks have zoomed as much as 94%.

In fact, 464 of the Nifty 500 stocks have given positive returns since June lows led by Adani Transmission, Tube Investments of India, Mazagon Dock Shipbuilders, Adani Total Gas and JSW Energy.

Sectorally, most of the stocks that gave returns of 40% and above were largely from the housing finance space, banks, clothing and footwear companies, quick service restaurants, consumer durables and auto ancillaries.

And analysts feel there’s more steam left in this rally.

Manish Jain, Fund Manager, Ambit Coffee Can PMS, says Indian markets stood out vs global peers over the last three years. Fundamentals of the economy remains strong and FIIs are coming back in a big way. Indian economy is positioned to be among the fastest growing economies of the world, says adding that there are ample wealth creation opportunities in equities. Invest in quality stocks across large, mid, small-caps, he suggests.  

The record Demat account tally, too, is a reflection of the confidence that investors have in the Indian economy and markets.

Last week, the country’s Demat account tally topped the 100 million-mark for the first time with over 2.2 million new accounts being added in August.

That said, valuations seem to have stretched a little – especially in the mid-cap segment -- post the steep rally over the past few months.

By the end of August, the Nifty Midcap 100 was trading at 23.2x, an 18% premium to large-caps. 

The Nifty Smallcap 100, on the other hand, was trading at 17.2x, a 12% discount to large-caps.

Analysts, however, opine that sustainable strong double-digit earnings growth will be able to justify the premium valuation.

“There are several segments which offer valuation comfort in the broader markets,” says G Chokkalingam, Founder and Chief Investment Officer, Equinomics Research.
 

“Among insurance, HDFC Life looks attractive; a few high quality PSU banks are also below their adjusted book value; while some pharmaceutical companies offer scope to accumulate at current levels,” adds Chokkalingam. 

Against this backdrop, the broader markets’ performance will be on investor radar this week.

Investors will track August inflation data for India and the US, and other global cues before taking trading decisions.

In the primary market, Tamilnad Mercantile Bank is expected to debut on the bourses, while Harsha Engineers will open their IPO.