This has been a V-shaped recovery from the August lows. While the Nifty has rallied 500 points from its lows, what’s been striking is the way some of the liquid mid-caps have bounced back. This is yet another deviation from the pattern of the May 2006 correction where mid-caps got slaughtered and took months to reclaim their highs.
Mid-caps, as a class, hugely under-performed large caps in the post-May 2006 phase for nearly 6-8 months. This time it’s different. The mid-caps have matched Nifty stroke for stroke and in many cases have gone to post fresh highs. This could be a significant gauge of sentiment and confidence; the damage has been weathered far more easily this time by investors and traders.
This is not to say that mid-caps didn’t correct in August; many popular stocks were down 20 to 30 per cent. It’s the pullback, which stands out. The infrastructure space has been a leader. Punj Lloyd slipped to 233 but is back to 285, within shouting distance of the old high of 295. Lanco crashed to 235 but is approaching 300 again. Financials have pulled back very smartly as well. IDBI has cruised to an all-time high of 130, IDFC is getting there, IFCI is at new highs too and PFC less than 5 per cent away though it never fell much in the correction. Even banks, which corrected sharply have rallied smart. UCO bank has jumped from 25 to a new high of 34, Dena bank dipped to 51 but is back to 64 and Central bank is at a new high of 133.
It’s not only the strong stocks which have bounced. Even dead dogs like Arvind Mills, Hind Motors and Triveni Engineering have surged quite significantly from their lows.
Part of the reason for the mid-cap resilience this time is of course the fact that over-leveraged traders didn't get butchered as they did in May last year. To that extent, there was no panic or forced selling. Since investors made money in the run up to 15,800, the correction was more of a notional drawdown in their profits and not severe "real" losses. So, as soon as the market showed signs of bottoming out, the crowd got right back behind the mid-cap jewels.
Individual stock futures have added well over 20 crore shares in open interest in the last 3 days, there can be no better indicator of mid-cap sentiment than that. While mid-caps are outperforming, the index needs to be in a positive groove for this to continue. If global jitters return to peg back the Nifty, mid-caps will correct sharply again. That's something to keep in mind from a tactical perspective, now that there are profits to play with again.
(The writer is Executive Editor, CNBC-TV 18)