Redemption pressure likely in SMIDs

Blue Chip Stocks In Focus

♦ Rising bond yields

♦ Markets turn wary of further escalation of the war tensions

♦ Riskoff sentiments now clearly evident

♦ Gold outperformed other asset classes

New Delhi: Diversion of funds is expected from small and mid-caps (SMIDs) to large-caps, leading to a sharp reaction in mid and small-cap category, where valuations are stretched, Hitesh Suvarna of JM Financial Institutional Securities said in a report. “But any correction in quality large-caps should be bought into at these levels,” the report said.

In addition to rising bond yields, as markets turn wary of further escalation of the war in Israel, riskoff sentiments are now clearly evident. Gold outperformed other asset classes by a wide margin in last one month, the report said.

“Going forward, we expect higher allocation towards quality large-caps, while redemption pressure is likely in SMIDs with stretched valuation”, it added.

Rising bond yields and the likelihood of further escalation of Israel conflict led to a renewed transition towards risk-off sentiments, which is evident from the fact that gold outperformed risk assets by a wide margin in last one month. Although Nifty delivered negative returns (-2 per cent), it managed to outperform the EM and DM markets significantly. China’s performance was in deep red (-6.2 per cent). FIIs continued to redeem for second month in a row, heavy selling came in sectors like Power, Oil & Gas and Metalsm while FIIs preferred Capital goods space in September 2023, the report said.

Brent crude has been hovering close to 90/USD levels, exerting pressure on EM currencies.