BSE MidCap Surges Over 7%, Most Since November 2023; SmallCap Jumps 10% in June

Despite valuation concerns, the BSE Midcap and Smallcap indices have continued their upward trajectory. Throughout June, the BSE Midcap index only saw declines on June 4, June 19, June 21, and June 25. Similarly, the BSE SmallCap index dropped on just three occasions: June 4, June 19, and June 25. On all other days, both indices experienced gains.

So far this month, the BSE MidCap has surged by 7.4%, marking its most significant increase since November 2023. The BSE SmallCap has risen by 10.2%, achieving its highest monthly gain since February 2021. In comparison, both the Sensex and Nifty have each increased by approximately 5.3% in June to date. 

Additionally, the midcap barometer has only lost ground on three occasions this month. Similarly, the Smallcap index has seen declines in just two sessions, gaining ground on all other days.

Interestingly, considering data from April 2023 onwards, the BSE Midcap index has only lost ground in October and December 2023. In contrast, the BSE SmallCap index experienced declines in October last year and in February, March, and May of this year. 

Notably, both broader indices have surged by nearly 92% each since April of last year, which is significantly higher compared to the Sensex and Nifty gains of 31% and 35%, respectively.

Rajesh Palviya from Axis Securities believes that if the Sensex and Nifty can maintain their gains, the rally could continue, with midcap and smallcap stocks likely to outperform as long as the Nifty remains above 23,000.  

He also pointed out that the current market is in a super bull run, with midcap and smallcap stocks outperforming. While indices like the Nifty and Bank Nifty have recently been consolidating, this trend is driving increased retail investor interest towards the midcap and smallcap segments.

Market participants also believe that expectations are high due to the anticipated positive budget and policy actions by the government, particularly in sectors such as fertilizers, sugar, railways, infrastructure, defense, capital goods, and power. 

According to market participants, ahead of significant events like the GST meeting and the budget, traders have propelled sharp gains in midcap and smallcap stocks throughout June. 

Interestingly, despite considerable discussion surrounding midcap and smallcap stocks following developments at Quant Mutual Fund, analysts believe this event is unlikely to cause a significant decline in the mid and smallcap universe. While some stocks held by Quant MF may experience volatility or redemption pressure, the overall market sentiment remains strong, suggesting no substantial downturn in mid and smallcap stocks.

Analysts also anticipate that the bullish momentum in midcap and smallcap stocks will persist, despite warnings and concerns about high valuations. The market continues to demonstrate resilience and potential for further outperformance. 

Siddarth Bhamre, Head of Research at Asit C Mehta Investment Intermediates, remarked that the current market trend mirrors the pre-election volatility, where a rise occurred just before election results, followed by a significant correction. He noted that monthly data reflects this election impact, but when examining longer-term returns over 52 months, the averages are stabilizing.

He advised against generalizing valuations in midcap and smallcap stocks, recommending instead that each stock be evaluated individually. The trend, he noted, is shifting from broad-based market rallies to more selective, stock-specific movements.