Mid-cap and small-cap stocks are likely to lead a pre-election rally that may see Nifty touching 12,000 points by July as the probability of Prime Minister Narendra Modi coming back to power gains ground.
"It is likely that we will have a pre-poll rally with the increasing odds of a stable government. Already, in the last five or six days, the market have upped the chances assigned to the probability of a BJP victory, resulting in this rally. It is deep in small and mid-caps and is likely to continue," Rajesh Baheti, President of Association of National Exchanges Members of India said.
On Tuesday, Nifty ended at 10,987, up 123.95 points or 1.14 per cent.
Baheti said the next three months looked good for the markets. "If the BJP is able to make the government, then the market will give an initial euphoria with a front loaded rally. We are likely to see 12000 in July on Nifty," he said.
Siddharth Sedani- Vice President - Equity Advisory, Anand Rathi Shares and Stock Brokers said a momentum has been building up on small and mid cap as they were big underperformers. "They were not able to perform because of global cues and concerns over elections. With tensions at the border cooling off now, markets are reacting positively."
However, he said, while a pre-election rally is imminent, it is not certain to what extent it can drive the market. "Volatility will persist until we get the election result and it will not be a one-way street," Sedani added.
Baheti said some margin trading books close out by March and reopen by April. "In April, these books will open up and we may see a huge mid-cap and small-cap catch-up by the first half of May."
Mid-cap and small-caps had seen a four-year rally during the Modi government from 2013 till December 2017. It, however, ended in January 2018 following concerns around high valuations, liquidity crunch and reduced mutual fund inflows.