Midcaps in flavour

Mid and small-cap shares remained in focus on Friday, as investors continued to mine the broader market in search of value bets. With the valuations of frontline shares perceived to be stretched, investors restricted activity in this segment to a few, resulting in equity benchmarks closing marginally lower in a listless trade on Friday.

The Sensex closed at 20,030.83, down 73.56 points, or 0.37%. Nifty ended at 6,047.70, down 10.4 points, or 0.17%. In the broader market, the small and mid-cap indices rose 1-2%. Gainers led losers at 2,082:830 on BSE, indicating that the bullish streak is intact. Analysts and fund managers said investors are lapping up mid- and small-cap shares because many of them trade at a discount in valuation to their frontline counterparts.

“Mid-caps are now trading at a 20-25% discount to large caps, the highest over the past 4 years. Therefore, the trend witnessed in November, where benchmark indices declined while the broader market indices outperformed, may continue for next few weeks,” Merrill Lynch said in a recent note.

Experts feel that the frontline shares, which constitute the benchmark indices, are unlikely to rally in the near term, unless foreign institutions return to India in a big way. The Sensex is trading at roughly 20 times the 2008-09 estimated earnings.

Many foreign institutions prefer to stick their bets to frontline shares due to higher liquidity and that
these companies are perceived to follow better corporate governance standards.

Foreign institutional investors (FIIs), according to provisional data on NSE, on Friday net sold Indian shares worth Rs 647.1 crore, while domestic financial institutions net bought to the tune of Rs 105.18 crore.

Since the US Federal rate cut on Tuesday, selling by foreign institutions have risen, while domestic institutional buying has been fading. So far this year, FIIs have net bought Indian shares worth Rs 70,421, according to Sebi data.

Elsewhere in Asia, markets extended losses on Friday, with Japan’s Nikkei and Topix indices falling close to a percentage each. Hong Kong’s Hang Seng dropped 0.6% and Singapore’s Straits Times ended roughly 0.4% lower.
\
Back home, the inflation index rose to a three-month high mainly due to the statistical effect of a lower base. The whole price index (WPI) rose to 3.75%, in the week ended December 1 from the same period last year, up from the previous week’s 3.01%.