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Till May 23, the S&P BSE Mid-cap index had surged 20 per cent, while the S&P BSE Small-cap index moved up 24 per cent. In contrast, the benchmark indices - the S&P BSE Sensex and the CNX Nifty rose nearly 12 per cent.
"The fall in the mid-and small cap segments is due to profit booking. These stocks had run up sharply over the past few sessions. I feel that the overall positive sentiment is still intact but one has to be careful while stock selection," said Ravi Shenoy, assistant vice president (mid-cap research), Motilal Oswal Securities.
Despite the fall, analysts say, the positive sentiment in the mid-and small-cap segment is here to stay and the fall is a mere correction given the sharp rally. Going ahead, an improvement in the overall macro-economic situation will help companies in the mid-and the small-cap sectors gain financial muscle, they suggest.
Says Sunil Jain, vice president - equity research at Nirmal Bang: "We had seen a healthy run-up in these stocks. Now, a number of stocks that had doubled have declined. So, the fall is a price correction / profit booking. There is still some scope for a correction in the near-term."
As regards key macros, Tushar Poddar, chief India economist at Goldman Sachs expects the GDP (gross domestic product) growth to accelerate from 4.6 per cent in FY14 to 6.5 per cent in FY16. He expects investment demand to recover mainly due to a favourable base, removal of election - related uncertainty, project clearances being fast-tracked, and a revival in animal spirits on the back of rising equity prices and improving liquidity conditions.
Top picks
So where should you invest now? Since most of the stocks from these segments have suffered in the last five years due to a combination of domestic slow down and mid cap value contraction and had run up sharply, analysts suggest investors need to be cautious and invest for the longer term.
"Given the volatility in the market, it is possible that the market will have bouts of ups and downs and we advise investors to buy into every correction in the market as we believe that the resurgent structural story is yet to begin, suggests R Sreesankar, head - institutional equities, Prabhudas Lilladher.
"JK Lakshmi Cement, Texmaco Rail, Titagarh Wagons, AIA Engineering, Dewan Housing Finance, Astra Microwave, Elecon Engineering, Gati, Finolex Cables and Bajaj Electricals are some of the companies which we believe have great potential to give handsome returns," he adds.
Shenoy of Motilal Oswal feels that there is more steam left in a lot of stocks in the mid-cap space. He likes WABCO India, Suprajit Engineering, Finolex Cables, Lakshmi Machine Works (LMW) and AIA Engineering, V-Mart Retail, Berger Paints and Bajaj Corp.
