Shift to large-caps expected as Smids are richly valued

Retail investments into small and mid-cap stocks (Smids) are slowing and could move into largecap stocks, where the decline from the peak has been steeper. Early signs of this trend are evident as a key mid-cap index has corrected more than Nifty from its peak last month.

- Ram Sahgal

While the Nifty shed 3.35% from its peak of 20,222.45 on 15 September to its closing of 19,545.75 on 5 October, the Nifty Midcap 150 has fallen almost 4% from its peak of 15,599.05 on 12 September to 14,975.70 on 5 October. However, the Nifty Small-cap 250 index has pulled back just 2.66% from its 12 September peak to its current close of 12,238.55. Analysts expect this to decline further.

The rise of the Smids indices from March lows to September peaks underscores the outperformance of the indices thanks to direct and indirect retail flows into them.

While Nifty rose 20.16% from its 20 March low of 16,828.35 to its mid-September peak, the mid-cap and smallcap indices rose twice as much, thanks to investors pouring money into mid- and small-cap schemes of mutual funds at the cost of large-caps, aside from a chunk of direct retail flows of 14,400 crore in August after a five-month hiatus, according to NSE data.