Smallcap, midcap stocks stay afloat as Sensex, Nifty drop today; here's why

Smallcap and midcap stocks continued to rise on Tuesday, even as largecap indices saw some weakness after the recent gains. The BSE Smallcap index was quoting 150.73 points, or 0.29 per cent higher, at 51,917.45. The BSE Midcap index was up 26.45 points, or 0.06 per cent higher at Rs 45,137.92. 

Stocks such as Godavari Biorefineries, Apollo Micro Systems Ltd, Vedant Fashions Ltd, Aditya Birla Fashion and Retail Ltd, India Pesticides Ltd, Bayer CropScience Ltd, Yatra Online Ltd and ITI Ltd are among midcap and smallcap stocks rising up to 14 per cent today. 

Midcap and smallcap indices on BSE and NSE have gained up to 8 per cent in the past one year against a 2 per cent rise each in the BSE Sensex and the NSE Nifty. 

As far as the broader market is concern, both Nifty Midcap and Small cap Index are resuming uptrend after consolidating above its April breakout area and witnessed shallow retracement, indicating inherent strength, ICICI Securities said.

The NSE smallcap index ended above its 200-day moving average yesterday for the first time in seven months in yet another sign of bullish behaviour, Akshay Chinchalkar of Axis Securities said, adding that expectations of a US-EU trade deal are keeping sentiment positive.

"We expect a catch up activity in both the indices in the coming month as currently both the Indices are 7 per cent and 11 per cent away from its All-time high. Historically, maximum average correction in Midcap and small cap indices have been to the tune of 27 per cent and 29 per cent while time-wise such corrections lasted for 7-8 months. Subsequently, both indices have seen 32 per cent and 28 per cent returns, respectively in next six months," ICICI Securities said.
 
The brokerage noted that market breadth is always a good indicator to understand the sentiment of the market. In the current context, 86 per cent stocks of Nifty 500 universe are now trading above their 50-DMA and 39 per cent above their 200-DMA compared to April month’s lowest reading of 27 and 15 respectively, clearly indicating pick up in broader market participation. 

"Key point to highlight is that the current up move is backed by the broad-based participation, indicating the current up move is secular in nature. that has been further validated by significant improvement in momentum, breadth as well as sentiment indicators Key monitorable which would act as tailwind," it said.