Why: Midcap and Small stocks taking a hit in spite of the Nifty going up?

This is part 2 of the article.
Part 1 of this post can be read at : Why:NSE and BSE are shooting up and my stocks portfolio is sinking down daily?

Sensex closes at fresh high: Mid-caps, small-caps decline amid high volatility

On 18-Jan2018,Markets continued their bull run as sentiments remained buoyant amid forthcoming quarterly results and rising global markets. Sensex gained 178 points and closed at 35,260.29 whereas Nifty gained 28 points and closed at 10,817. The rally was also supported by banking stocks that witnessed strong buying pressure on expectations that government will increase foreign investment limits. Although, the markets turned volatile in the later part of the day as Sensex wiped out over 400 points from the day's high. Both mid cap and small cap stocks declined. BSE mid cap index lost over 300 points whereas BSE small cap index lost over 400 points.

Over 73% of the stocks that are traded on BSE today declined. Out of 3086 stocks, 2262 stocks declined, 696 stocks advanced and 128 remains unchanged. Adani Enterprises and UltraTech Cement declined close to 5% and 3% respectively after reporting decline in net profit in Q3FY18.

Among the A category stocks of BSE, MindTree (9.98%), Gruh Finance (8.65%) and Wabco India (4.22%) were the biggest gainers. The top 3 sensex gainers were ITC (2.61%), HDFC Bank (2.15%) and HDFC (1.99%). HDFC Bank market cap crossed Rs 5 lakh crores, becoming the first Indian bank to do so.

Out of the 19 BSE sectoral indices, 15 indices declined and 4 indices advanced. Metal, telecom and basic material stocks witnessed heavy selling pressure.

Among the global peers, Asian stocks advanced helped by surging stocks on Wall Street. Expectations of tax cuts, strong corporate earnings and healthy global economic recovery lifted US stocks. Japan's Nikkei Index slid after hitting 26-year high due to underperformance of financial stocks.
NIFTY stocks comprise of heavy weights which can only be moved by FII buying and selling. Midcap and small cap stocks move by DII buying and selling.

If you are talking of the recent week move by the NIFTY it is due to FII buying in IT stocks and banking stocks.

Screenshot of FII buying and NIFTY moving high relatively.

You can see FII Buying and DII selling

More over,

NIFTY is up only 6% in last 3 months whereas, Midcap and Small cap are up 12% and 14% in the last 3 months respectively after the correction.

You should buy quality stocks across captial and at various timeframe. Avoid panic selling and greed buying.

Always use correction to buy in the bull market.

Nifty returns in Last 1 month (4.1%):

If your portfolio has Midcap stocks and small cap stocks then compare your returns to your respective index. It is not bad to hold stocks through correction. If you were technically good, you could have booked profits just before the correction and must have entered in fresh stocks by now.

Even after the recent correction in the midcap and small cap stocks recently, they outperform NIFTY in the last one month.

Midcap returns in last one month (4.7%):

Small cap returns in last one month (7.4%):

Market outlook Going forward:

Technical correction was expected in both NIFTY and the broader market. Nifty, bank nifty and nifty IT was seen lesser correction of max 1-4% and correction in Metals, midcap, small cap was seen max at 6-13%.

While the correction started this week Nifty IT had given a strong support to the NIFTY while Metals, midcap and small cap atarted to correct. Next day, the news on fiscal deficit rallied the Banks.

Moving forward, while banks and IT Consolidate other stocks like UPL, Airtel, Reliance, ONGC will support the market.

Suggestion: 

Technical correction is getting over in sectors like metals, small cap and midcap. Use next good rally to exit overbought stocks. Next technical dips can be deeper with any bad news. You can add fresh stocks there. Stay bullish on Indian Stock market as a whole.

Market returns and good return probabilities are higher while the markets are at their new highs than the returns and high return probabilities at market lows.

3 months back the NIFTY was said to be costly and was at its high. The returns of the portfolio is above the market returns in the last 3 months.

Enter quality stocks, buy on dips, have a good stoploss and beat the market returns.

“Existing investors” should not worry about the volatility in the space. Such correction will come and go but there is no trigger for a big fall in the mid and smallcap space. “New investors” are better off in multicap schemes as the valuations in the small and midcaps are becoming too high.

Next Read :HDFC Bank-3QFY18 Results Update - Loan Growth Momentum Continues
Previuos Read: What to Do in Market Crash

Q3FY18-Sector Review:
Pharmaceuticals Sector -Q3FY18-Results Preview
FMCG Sector-Q3FY18-Results Preview
IT Sector-Q3FY18-Results Preview
Banking Sector-Q3FY18-Results Preview
Cement Sector-Q3FY18-Results Preview