Small and mid-cap stocks face challenges to sustain outperformance

New Delhi, Sep 6

Although there has been strong performance in the short term by mid and small-caps, sustaining this in the near term may pose a challenge, says Vinod Nair, Head of Research at Geojit Financial Services.

However, considering the overall market consolidation, it's not an ideal environment for investing in high-risk categories, he said.

Valuation of mid and small-caps remains appealing when compared to the trends of the past seven years. Specifically, small-caps appear to be even more attractive than mid-caps in the current scenario.

“Our view is that India is now more of a stock to sector play. We anticipate that the category as a whole will outperform in the medium to long-term,” he said.

V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services said for the near-term, there are mixed cues for the market. The negative factors are the surprising strength of the dollar index at 104.86, the resilient bond yields in the US (the 10-year at 4.26), and now, the Brent crude at $90. The spike in crude is a major macro concern.

In this scenario, the FIIs are likely to continue selling in the cash market. On the positive side, the sustained DII buying is imparting strength to the market. DIIs have bought stocks worth Rs 5,934 crore in the cash market during the last three trading days of September, he said.

Retail also is buying, and this ‘buy on dips’ strategy has worked. The rally in IT stocks has contributed to the resilience of the market. IT and the fairly valued banking stocks, particularly the leading private banks, have the potential to support the market. But investors have to be cautious about the headwinds, particularly the rising crude, he said.

BSE Sensex is down 96 points at 65,683 points on Wednesday. Tata Steel, NTPC are down 2 per cent.