The benchmark equity indices may well be trading near record highs but the overall market is still showing signs of weakness as there has hardly been any corresponding rise in the vast midcap and smallcap universe.
On Monday, when the benchmark Sensex lost 0.60%, all the broader indices lost more than 1% each as the market breadth remained extremely negative with more than 2,000 stocks in the red as against the less than 600 gainers.
Further, both BSE Midcap and BSE Smallcap indices, that have a combined strength of more than 950 stocks, lost about 2.5% each on Monday.
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Interestingly, even as the Sensex touched its new high on Thursday last week, the overall market breadth was negative on that day with almost 1,500 stocks losing ground on the BSE as against 1,153 gainers.
More importantly, the BSE Midcap and BSE Smallcap indices are still trading significantly lower when compared with their all-time highs touched in January. The BSE Smallcap, which touched a high of 20,183 on January 15, is currently almost 22% lower at 15,790.
Similarly, the BSE Midcap index is down almost 18% compared with the peak touched on January 9.
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Amarjeet Maurya, assistant vice-president — research (midcap), Angel Broking, is of the view that investors are still cautious about putting money in midcaps since there are many macroeconomic uncertainties that could affect the overall market direction.
“The recent highs have been on the back of gains in select index heavyweights,” said Mr. Maurya.
“The broader market is still weak due to concerns related to crude and current account deficit. Most of the midcaps still appear overvalued after the gains early this year and given the macroeconomic concerns, investors are still cautious,” he said.
Valuation concerns are corroborated by the fact that the BSE Smallcap index is trading at a price earnings (PE) ratio of 105.35 even as the benchmark Sensex has a PE of 22.86. The BSE Midcap is currently trading at a PE of 31.89.
MFs churn portfolio
According to a section of market participants, the recent past had also seen mutual funds rebalancing their portfolios by moving from midcaps to largecaps to comply with the new norms laid down by the Securities and Exchange Board of India (SEBI).
Meanwhile, the other broader indices like BSE 200 and BSE 500 are also currently about 4-7% away from their record highs.