The benchmark indices are taking a breather today but the outperformance of the broader markets continue for the third straight session. The BSE Midcap Index is up over 1% and the BSE Smallcap Index is gaining steadily as well, up 1.4%. If we check the r-day gains, the BSE Smallcap Index is up over 4% while the BSE Midcap is up 3% in last 5 sessions.
Sector-specific action
Many experts believe the outperformance in the small and midcap space is connected with the sector-specific action. For example, the defence stocks have been seeing sustained buying and most of these counters have significant weightage in the small and midcap space.
According to Ajit, “It could be due to select themes like defense, PSUs offering stock-specific opportunities while the index is witnessing choppiness.”
FIIs have higher exposure to large caps
Another key reason many experts have been citing is the steady FII flows. According to them most FIIs have been buying without a break in the Indian markets. On the one hand this instills confidence and on the other hand this also means that in case of a potential selling by FIIs, more impact will be seen in the large cap space.
Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments explained that “sustained FII buying has been keeping the market resilient recently. Now there is a market perception that following the US-China trade deal, FIIs will turn sellers in India in the near-term. They are likely to sell large caps which have done well in recent days. FIIs have low exposure to mid and small caps. In this context retail investors also are focusing on mid and smallcaps.
Small and midcaps funds see higher inflows
The April Mutual Fund flows have also lifted investor sentiment. The small caps and midcap funds continue getting larger inflows compared to large caps. What’s interesting is the equity inflows have been steady despite market volatility. The equity AUM is 4% month-on-month, and industry AUM has grown 6% from March levels.