Structural Shift in Momentum

Change of Baton

1) From what was clearly a tapered rally from expensive Large-caps to under-valued Mid-caps, is now turning its head from Mid-caps back to the Large-caps. There was no possibility of the benchmark indices moving higher without the support & participation of the leading heavy weight counters.

2) The expensive heavy weight stocks are back in the vogue what with an all-important event in the form of Union Budget not so far away. However, mid-caps are not the absolutely forgotten lot. There is still a bullish tend prevailing amongst the mid-caps but in ones which are left behind in the race of mid-cap momentum or the ones that stand to benefit majorly from the Budget announcements.


Passing the Parcel

This shows to a great extent that mid-caps, which had under-performed big time during the last 3 months to their larger counterparts, are no more in 'Comfort Zone'. Speaking comparatively, even large-caps are no less cheap than their smaller counterparts. But, perhaps, they can support the ongoing phase of euphoria more strongly on the base of their superior fundamentals.

It is difficult to predict the top of this 'Mini' bull phase of last 3 months. But, we can keep tracking the signs the markets are providing. Like, for example, we saw Large-caps bloom in the initial part of the rally from Sensex 8000 to 10000 levels. Later, from Sensex 10000 to 12000 levels, we got to witness large-caps being valued in the 'Fair Valuations' Zone. At the same time, mid-caps which had under-performed from Sensex 8000 to 10000 levels , started catching in the later part of the Sensex journey from 10000 to 12000 levels.

In the later part of the excess euphoria from Sensex 12000 to 15000 levels, based on combined effects of excess global liquidity & re-rated fundamentals of India on the back of Political stability and likely Reform movements, we witnessed large-caps attaining euphoric valuations which needed support on the base of 'Forward Earnings' estimates. Mid-caps & Small-caps rised vertically as if there is no tomorrow.

Now, we're witnessing that the baton is being passed on from mid-caps to Large-cap as benchmark indices are up to test newer highs. These are times of euphoria where 'Greed' factor takes the front seat and if investors do not exercise caution, they may be in for some sort of pain when markets witness even a mild correction in the rally. Investors should adhere to patience and not make fresh purchases until there is a meltdown of the over-exuberance in the short to medium term horizon. Though, they can ride the momentum on the back of their already invested portfolio.

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