Small and medium caps glow; will their outperformance last?

So far in July, mid and small caps have outperformed their larger counterparts amid volatility.

The S&P BSE Midcap Index has gained around 5% so far in the current month, while the S&P BSE Small-cap Index has jumped around 4.5%.

By comparison, the S&P BSE Sensex rose only 2% during this period. The overall surge in markets, analysts say, is mainly due to a fall in commodity prices, particularly crude oil, providing a respite from unfavorable macroeconomics.

Global bond yields have also moderated by 20-50 basis points from recent highs and earnings estimates for the Nifty have not seen meaningful cuts. All of this is supporting market sentiment for now, analysts at Motilal Oswal Securities said.

“Nifty valuations moderated to 18.7x FY23 EPS, in line with its long-run averages. The glass appears to us to be half full, delicately balancing headwinds with some silver linings,” according to Motilal Oswal Securities.

According to VK Vijayakumar, chief investment strategist at Geojit Financial Services, the main factor influencing the markets is the sustained rise in the dollar which has accelerated over the past month.

“The dollar has appreciated 5% since the beginning of June and 13% so far in 2022. If this trend continues, it is bad news for emerging markets.

But for now, it looks like this ‘flight to dollar safety’ is a bit overdone and needs correction,” says VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

G Chokkalingam, founder and chief investment officer at Equinomics Research, expects this choppy phase of the markets to continue over the next two to three months.

G Chokkalingam, founder and chief investment officer at Equinomics Research, says the influx of retail investors is keeping interest in mid and small caps. A sharp correction in mid and small caps has made them attractive, he says. Markets will remain choppy going forward; The action of the American Fed is essential. Stay careful; evenly split between large, mid and small caps.

So what should your shopping list look like in this segment?

While analysts at Motilal Oswal Securities remain bullish on these eight mid and small cap stocks which include Jubilant FoodWorks, Macrotech Developers, Lemon Tree and Ashok Leyland…

Here are some suggestions from Edelweiss Securities: Whirlpool, PVR, Blue Dart, Varun Beverages, PI Industries, Trent.

On Wednesday, sentiment will be impacted by the inflation figures released on Tuesday after trading hours. The stock-specific action will continue as the companies announce their Q1 to FY23 numbers.

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