In the last few weeks, broader markets have seen a good run-up, especially the mid and the small-cap stocks, which saw long positions being built up mainly in anticipation of the US Fed rate cut.
Nifty Midcap 100 fell over 1800 points off day’s high in Sep 19 trade, registering its biggest intraday fall in over 1 month with 90 out of 100 constituents of Midcap 100 index trading in red.
Broader Indian markets fell on September 19, with Nifty Midcap and Smallcap indices giving up morning gains and slipping deep into red, after the US Fed’s first rate cut in over four years.
The Nifty Midcap 100 index shed over 1800 points from day’s high ending the trade at 59,351.90 points. As many as 87 of the 100 stocks in the index traded in red during the day. Indus Towers, Torrent Power, Vodafone Idea, Bharat Dynamics were among the top laggards on the index.
The Nifty Smallcap 100 index was down over 500 points during the day while concluding Thursday’s trade at 19,144.85 points, tracking the negative divergence in the broader market.
The India VIX, or volatility gauge, dropped over 6 percent to 12.5.
“Technically, there is negative divergence that has formed where Nifty Midcap index has made higher highs. But RSI has made a lower high, and such negative divergence is probably a short-term correction. We expect a corrective phase in the mid-cap in near-term,” said Ruchit Jain, Lead – Research, 5Paisa.com.
He advised traders to avoid bottom-fishing. “In the mid-cap space from a short term perspective, we could see some more dip before the segment stabilizes,” said Jain. The immediate support for Nifty Midcap 100 index is at around 58,500. If index breaks below this level, then it could fall further to 57,700 in the short term, he added.
In the last few weeks, broader markets have seen a good run-up, especially the mid and the small-cap stocks, which have seen significant gains. Long positions built up mainly in anticipation of the US Fed rate cut, which was finally delivered yesterday.
The US Federal Reserve cut its benchmark interest rate after more than four years. “What’s happening is that the positions were built in anticipation of any such big event. So after the outcome of the event the markets are witnessing profit booking as traders start unwinding these positions,” Jain noted.
Defensive segment to rally?
Nair believes the global slowdown is unlikely to affect domestic consumption, particularly rural demand, which is expected to thrive due to favourable monsoon conditions, easing inflation, and increased government spending. Like the ongoing global currencies volatility is least expected to impacted them. In fact, they stand to benefit from anticipated lower inflation and steady demand, leading to improved profit margins. Investors are increasingly drawn to sectors with stable earnings growth, particularly the FMCG sector, which offers such prospects.
Asian markets have responded favourably to the 50-bps rate cut and accommodative monetary policy, expecting an improvement in FII inflows. India is likely to experience similar benefits in the short to medium term, although it currently remains in the background due to its elevated valuations, he added.
Sreeram Ramdas- Vice President at Green Portfolio PMS said the long term neutral rate is expected to be higher than what was anticipated before the meeting. The correction we are seeing is valuations falling from sky high levels in small and mid-caps which is well deserved.
The brokerage Nuvama Instituinal Equities said the Midcap100 remains in a long-term uptrend but is losing steam as momentum indicators are coming out of extreme overbought condition.
“The ratio chart of the Midcap100 against the Nifty50 has tested its long-term rising channel resistance zone and has retreated from its recent high, indicating short-term underperformance of the Midcap Space vs Large Caps,” it said.
The analysts at the brokerage said the Midcapcap100 index may experience 5-10 percent decline on violation of the 58,000 support level. While the support level is 19,00 for the Smallcap 100 and 24,600 for Microcap250.
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