Emkay Institutional Equities, a part of Emkay Global Financial Services Ltd, reiterates its stance of Nifty to remain at the 24,000 level. Emkay expects the market to rebound in 3-6 months, when SMIDs (Small- and Mid-Caps) would start to outperform again and the ‘hide in large-caps’ trade would unwind.

“The correction observed in March can be attributed to inflated valuations and concerns regarding liquidity within SMID funds and stocks” it said in a release.

Devil in details

While the headline correction appears moderate, there is a substantial number of stocks that have been significantly affected. While not the most severe post-Covid correction, the pace at which it has unfolded has been disruptive, it further said. Particularly, energy, real estate, and materials sectors have been notable underperformers, with the decline in the first two sectors largely driven by mean reversion.

The current rally in SMIDs is primarily driven by a shift in India’s economic growth trajectory from consumption and services towards manufacturing and investment. This shift has resulted in a redistribution of the incremental profit pool away from sectors such as banks, fast-moving consumer goods (FMCG), and Information Technology (IT), which are dominant in the large-cap universe.

Conversely, manufacturing sectors – which are predominantly composed of SMIDs – have played a significant role in propelling the market’s rally. This trend is expected to remain a focal point of government policies and any significant change in incremental growth is unlikely in the near future.

SMID rallies are inherent to the market, characterised by higher volatility and often accompanied by inflated valuations, followed by rapid and pronounced corrections, similar to the current one, it cautioned.