Before I start, I would like to boast about my Rants on how Smallcaps/Microcaps in March end.
Check the following links or skip to the next section.
- My Rants on Twitter
- Excerpt from this Article – Bounce or Rally after Smallcap Pessimism is Crazy and Sharp !
- Just Super Lucky Timing for Bottom – Nifty50 – Triple Positive RSI Divergence.
The Smallcap Index Breaking Out.
Here we look at our favorite BSE Smallcap Index.
( BSE has stopped updating it live, but end-of-day data is available. So only closing prices. )
Some interesting points about the Index.
- There are 1262 stocks in this Index.
- Only 1 stock has 2.25% weight ( MCX ) rest all below 0.9%
- Industrials = 22.5% , Consumer Discretionary = 20% Finance = 20% , Healthcare 12% Commodities = 10%
The Technical Picture
- 25-27% up from the March Lows.
- 16% higher from War Start.
- 4-5% away from all time highs.
- Breaking out above the trendline.
The other Nifty Smallcap Indices also look similar.
Nifty Smallcap 250 and Nifty Smallcap 100 also near Trendline Breakouts.
The Indian Magnificent 7 in 2018-2019
India got their Mag 7 in 2018-2019 when HRITHIK stocks were the only stocks that did well in 2018-2019, and rest of the market continued to drift lower.
- H – HDFC Bank
- R – Reliance Industries
- I – Infosys
- T – TCS (Tata Consultancy Services)
- H – HDFC (Housing Development Finance Corporation, since merged into HDFC Bank)
- I – ITC
- K – Kotak Mahindra Bank
Do you guys remember this Meme image used to float on Whatsapp
The Market teaches you new lessons in every Cycle. Before 2018-2019 we had never seen a divergence where Nifty is up 10% and Smallcap Indices are down 30-40%. The direction would be similar and quantum different but this was opposite.
Are we today looking at the Opposite of 2018-2019 ?
Sab Chal Jayenge, Sirf Largecaps hi Soyega?
I have had this view of Microcaps/Smallcaps leading and outperforming the Nifty since the start of the Year. We launched a Top 20 Microcaps Smallcase, which is up around 10-13% against a -3% of Nifty50. As you have seen in the charts above the Smallcap Outperformance is very stark and clear.
Drifting HeavyWeights, Sleeping Heavyweights etc have been the posts on the Top 10 Nifty50 Stocks.
There are some reasons why it can be a Stock Specific Market with Smallcaps/Midcaps doing better
- The Earnings Expectations are much better for Midcaps/Smallcaps with strong balance sheets, unlike previous cycles.
- The number of Stocks listed and trading today is much higher, so a Bigger Universe. 3384 stocks traded today on NSE. Used to be 1400-1600 pre Covid.
- India is no longer just Nifty50. 20 years back Nifty 50 used to be 60% of Full Market Cap and 68% of Free Float Market Cap of Indian Stocks. This is down to 44% and 51%.
- India has moved ahead, but Nifty50 cannot due to the way it’s calculated. Banking and Financials to remain the highest % weight due to free float.
- The Largest Companies in the Global Indices are doing the most exciting work. Space, Semiconductors, AI, Products, Ecommerce etc. The Largest Companies in India are the most boring businesses?
There are always reasons to justify a view point.
Simply put, as of now, the State of the Market suggests – It’s better to be Stock Specific and avoid looking at the Nifty 50 ( Unless it breaks March lows )
In the initial recovery from March lows, the Midcap Indices made new all-time highs. Are we looking at small-cap indices to do so in the current and next recovery in the Nifty?
NooreshTech Research Services
1. Technical Traders Club – Techno Funda Investing
2. The Idea Lab – MomentumTrading
3. Smallcases – Equal Weight PF
Nooresh Merani (INH000008075) Disc shorturl.at/kgosD
