The long and short of the mid-cap rally

Mid-cap and small-cap stocks have rallied significantly in the past three years, even outperforming the benchmark Sensex. The Nifty Midcap 100 and Smallcap 100 have outperformed the Nifty 50 by 15 per cent and 16 per cent since August 2013.

The rally in some cases has been backed by improvement in business fundamentals. But, in most other cases, it has been due to re-rating (a term used for assigning a higher price to earnings multiple for a stock or index). A report by Ambit Capital says stocks in the BSE 500 index have seen the sharpest re-rating in the past