Does this set of winners give you confidence?
The move in the midcap space in the last one month is hardly awe-inspiring. The set of stocks which have gained recently arent exactly the names which inspire confidence in the nature and safety of the rally.
The question mark really is - can this last? Well, the famous saying is that the markets can stay irrational for longer than you can stay solvent. However, I am writing this piece after being surprised by the movement in select stocks for a few days now, and I finally reached a point where I had to highlight the trend.
As you read this, some high beta names are starting to correct. This may be short-lived and my words my come back to bite me if the rally continues. I am sure people at various stages of the runup in the stock of R Com would have said that the move is unsustainable. And yet the stock continued to rise.
Sample this - the combined M-Cap of the Anil Dhirubhai Ambani Group moved up from about slightly less than 10 billion dollars to over 12 billion dollars in a span of less than 15 trading sessions.
| M_cap on 19th Dec | M-Cap on 2nd Jan | % Change in M-Cap | |
| Reliance Comm | 3173 | 9015 | 184 |
| Relaince Naval | 2626 | 4344 | 65 |
| Reliance Power | 10379 | 16087 | 55 |
| Reliance Capital | 10723 | 15078 | 41 |
| Reliance Infra | 11657 | 14806 | 27 |
| RNAM | 16536 | 17604 | 6 |
| Reliance Home Fin | 4378 | 4520 | 3 |
And while a clutch of these names have fundamental developments, I havent yet seen any notable fundamental reports about how strong would these stocks become fundamentally. Sure, they are under-owned and they are not expensive (mind you, I am not using the term çheap valuations' here), but that is not enough to have massive rallies on stocks. I can show you a clutch of stocks that are underowned, cheap and still not finding buyers.
Will the broader markets correct then? Well, I have heard is that the P/E multiples of the Midcap and the Smallcap Indices are sky high, and that these levels are not sustainable. Been that way for a while now, but remember that the interest of almost all PMS schemes, AIFs and well as the plethora of Midcap and Smallcap funds from AMCs are looking to invest in value names in the Non-Nifty/Non-Sensex area. So the bottom-up story will likely continue. However, it might be healthier for the market to have a fundamentals-driven rally, as that kind of rally is sustainable. It would be very unfortunate to have people lose quick money by investing in non-fundamental driven rally names if the markets were to see the much-awaited healthy correction in what promises to be a volatile month. Did I forget to mention that India Vix typically rises in the month of January?
