Stock Market

Midcap bulls likely to get active now, but largecaps may see correction

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The Indian stock market moved at snail’s pace this week, giving no clear sign on the way forward.

FIIs and DIIs also signalled a confused state, as there was no aggressive buying.

However, institutional investors have turned bullish on infrastructure, power, metals, realty and cement segments, probably in anticipation of the forthcoming Budget sops. But among all of this, midcaps have finally started picking up pace and frontline stocks have started showing cracks.

The mean reversion nature of Mr Market is finally acting on the much-talked-about divergence in the returns of midcaps and largecaps in last one year. In fact, midcaps have shown a decisive leadership position in certain pockets, which is what will spearhead the rally on Dalal Street until the Union Budget in early February. To add to this, Dalal Street seems to have already priced in all the positives, and that makes a good case for the largecaps to correct now.

Investors can turn towards value picking from the midcaps space to ride the rally. Historically, it has been observed that initial rally days in a New Year augurs well for the full-year ahead.

Green offshoots are visible among midcaps and smallcaps, which will set the tone for the market in 2020. Momentum should also pick up at the ground level, given the timely boosts from the government.

The latest Rs 102 lakh crore infrastructure injection plan may take a lot of time to show actual results, but it will definitely help growth to pick up in the debt-laden beaten-down space. Event of the WeekDecember auto sales numbers have been a mixed bag with two-wheelers and commercial vehicles reporting heavy drop in volumes, while passenger vehicles and tractors reported marginal dents. Seasonality and inventory management before the shift to BS-VI in April and year-end shutdowns have all added to the auto woes and it seems the pain is not over yet.

Despite having come up from their lows, auto stocks will still take some more time before they actually pick up momentum for a sustained rally. Technical OutlookNifty50 is showing signs of fatigue, which can be observed from the declining volumes and, therefore, a break of the 12,100 level in Nifty50 can kick off a correction of the entire rise since October.

However, the midcap index is giving a different picture all together.

It has clearly broken its downward sloping trendline, which has most likely signalled a sustained rally in the making for the broader market.

Buy on dips in the broader market should be the strategy for traders. Expectations for the WeekNext week, the market is likely to witness momentum from the midcap bulls, while largecaps may experience a correction.

Certain sectors such as infrastructure and cement should continue to see action until the Union Budget.

Pharma, on the other hand, looks attractive.

However, it seems flow of smart money hasn’t begun yet, but the traction will start showing soon.

The steel space is also showing strength, as there is an increase in dispatches and a higher selling price, and this sweet cyclical rally has more legs albeit with intermittent minor corrections. Investors can start cherry-picking quality companies from midcaps and smallcap segments on declines.

Nifty50 closed the week 0.15 per cent down at 12,227.




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Category: Stock Market


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