Momentum in mid-cap & small-cap stocks

The September 8-14 under review saw markets gain on the first four days of the period. Wednesday was a completely different day. On the back of very negative cues from the US which lost 1,276 points on Tuesday night, our market opened sharply downwards and made lows at 59,417.12 points on the BSE Sensex and 17,771.15 on NSE Nifty. These incidentally were also the lows of the day and markets recovered completely before closing with losses of 0.37 per cent on BSE Sensex and Nifty. During the period under review, BSE Sensex gained 1,318.06 or 2.18 per cent to close at 60,346.97 points, while Nifty gained 379.35 points or 2.11 per cent to close at 18,003.75 points.

Dow Jones had a great week gaining on the first four days consecutively. Higher than expected inflation numbers were enough to wipe out all the weekly gains and Dow lost 40.33 points or 0.13% to close at 31104.97 points. Post these inflation numbers the FED meets for its monetary policy meeting on Tuesday and Wednesday (September 20&21). At this meeting the expectation was that interest rates would rise by 75 basis points. Post inflation numbers, 3/4th of the people who are regularly polled believe that the hike could be as much as 100 basis points. How US markets behave before the FED meeting is difficult to predict or forecast. In pimary market news, the issue from Tamil Mercantile Bank Limited will be listing on Thursday. The company had tapped the capital markets with its fresh issue for 158.40 lakh shares in a price band of Rs500-525. The issue has been priced at Rs510, because the Anchor allotment was done at Rs510. The issue was subscribed 2.85 times.

The issue from Harsha Engineers International Limited has opened for subscription and at the end of day one was oversubscribed 2.94 times. Details of the issue have been covered separately in another article.

Coming to September 15-21 period under review, one would get clarity of what happened in Wednesday's trading in the Indian bourses. Very clearly, even though FPI have turned buyers, the strength in the midcap and Small-cap space is too strong, and indicates that Retail is investing heavily in this space. As long as momentum is with the investors, everything will be fine. For how long, not quite sure?

The targets of 18,100 have been respected so far and until and unless they are decisively broken and sustained, they will act as resistance. Similar level on the BSE Sensex is 60,700. In case there is a breakout and they sustain, there could be further upside from these resistance levels. While targets from there could be bigger, at this point of time they are suspect.

With momentum in mid-cap and small-cap stocks, it will be profitable to deal with the better stocks in the lot. Once decent gains are made it will also be important to book profits and move on as so far, the broad results have not given the comfort that could sustain such higher valuations. Pray that the markets hold as Wednesday in the US would be another day when the Fed announces its rate hike.