Signs of overheating in small cap stocks

New Delhi, July 12

There are signs of overheating in the small-cap space. Some leading mutual funds in the small-cap segment have stopped fresh lump sum investment in their schemes, says V. K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

"This is an indication of froth building in this space. Investors should exercise caution chasing small-cap stocks. Liquidity can drive markets higher. So it makes sense to remain invested in this market. But optimism has to be tempered with some caution," he added.

Even after the recent run up in markets, sentiments are clearly bullish. Global and domestic cues are positive. If the US CPI data expected late in the day indicates YoY inflation dipping below 3 per cent, the US market will rally further lifting other markets, too. This data can throw light on the Fed rate action on 26th July, he added.

According to Motilal Oswal Asset Management Company (MOAMC)'s Global Market Snapshot report, Nifty Smallcap 250 and Nifty Midcap 150 outperformed all major indexes, gaining 6.36 per cent and 6.16 per cent, respectively in June.

As per MOAMC's report Nifty Smallcap 250 and Nifty 150 rose to 19.99 per cent and 18.05 per cent respectively in Q1FY24.

The NIFTY 50 reached a new milestone, surging past the 19,000-level to set a fresh all-time high surpassing its previous peak in December 2022.

Notably, the realty sector continued its aggressive upward movement and rose 9 per cent conversely, the IT sector remained relatively flat, while the Healthcare sector rose 9 per cent.

Both Emerging and Developed markets delivered positive performance, with Brazil emerging as a standout performer, surging by an impressive 15 per cent. Within the US market, the NASDAQ 100 and S&P 500 indices recorded solid gains of 6 per cent with the IT sector remaining a prominent contributor to overall returns of S&P 500, the report said.