Editors' Roundtable | A look at smallcaps, midcaps, and broad-based rally
The recent market action in smallcaps and midcaps, combined with the astonishing P/E ratios, highlights the growth potential and volatility within the Indian market. The broad-based rally in India stands in stark contrast to the narrow rally driven by a handful of stocks in the US. As the market's direction hangs in the balance, investors and traders eagerly await the developments in the coming days, offering an opportunity to gauge the market's future trajectory.
The past week witnessed a flurry of activity in the smallcaps and midcaps as they continued their upward trajectory for the 12th consecutive week. However, as the market approached the 13th week, signs of pressure started to emerge, halting the rally in its tracks.
One fascinating statistic that stands out is the limited number of BSE stocks that boast a market capitalisation of over Rs 1,000 crore. Out of all the listed companies on the BSE, only 1,005 fall into this category.
Among these, a mere 251 companies have managed to generate profits. What sets them apart is their high price-to-earnings (P/E) ratio, with 50 times or more being the benchmark for this select group.
Comparing these numbers to the situation on March 31, when the market was at its lowest point before the rally commenced, the P/E ratio for this group of stocks was around 15 percent. Now, however, an incredible 63 stocks sport a P/E ratio exceeding 100. These figures are far from insignificant and indicate the substantial growth and potential within these companies.
Shifting our focus back to the Nifty itself, the midcap and smallcap indices experienced their first pullback after 12 weeks of consecutive gains. On Friday, the Nifty closed precisely at the 20-day moving average (DMA), a level of significant importance for traders looking at short-term positions.
The number to watch was 18,660, which had been highlighted on Thursday and Friday. With no clear direction, the market awaits a decisive move that will likely occur early next week, just before the midweek holiday.
While the Indian market has witnessed a broad-based rally, encompassing a diverse range of sectors, the situation in the United States paints a different picture.
The rally across the Atlantic has been notably narrow, primarily driven by the success of only six or seven stocks. These companies have experienced substantial growth due to the widespread belief that artificial intelligence (AI) will disrupt traditional industries.
In contrast to the Indian scenario, the outlook for the NASDAQ in the US remains divided. Some analysts predict that it will continue to climb and achieve new highs, while others believe that a correction is imminent.
The crucial question now is whether a potential correction in the NASDAQ will coincide with a correction in the Indian market, as many experts anticipate. Over the next few days, the market will provide the answers to these pressing questions.
Meanwhile, the Nifty itself hovers around a crucial juncture, closely aligned with the 20-day moving average. The market's performance in the coming days will shed light on its next course of action and provide valuable insights for investors and traders alike.
For more details, watch the accompanying video
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