Is the Recent Bounce in Mid-Cap and Small-Cap Stocks Sustainable?

The recent upward movement in mid-cap and small-cap stocks has sparked interest among investors, suggesting potential for further growth. Technical indicators hint at a possible 5% rise in their indices, following a similar increase over the last three trading sessions. However, the sustainability of this recovery remains uncertain, especially after a significant decline over the previous six months.

On Wednesday, the Nifty Midcap 150 index saw a 2.37% increase, while the Small-cap 250 and Microcap 250 advanced by 2% and 2.2%, respectively. These indices have risen between 4.7% and 5.2% in the past three days, outperforming the Nifty 50's benchmark increase of 2.25%. This shift is attributed to improved global sentiment and reduced selling by foreign investors.

Expert Opinions and Market Indicators

Ruchit Jain, vice president at Motilal Oswal Financial Services, noted the impact of the dollar index's fall and FIIs turning buyers, leading to a positive market breadth. He anticipates a short-term increase of 3-5% in these indices, citing their close above the 20-Day Simple Moving Average as a crucial short-term market indicator.

Despite the recent recovery, the mid-cap 150, small-cap 250, and micro-cap 250 indices have experienced significant declines since September 27, with reductions of 20.5%, 25.4%, and 25%, respectively. Indian equity benchmark indices, BSE Sensex and Nifty50, have also seen a recovery from recent lows, rising over 2% in the past five trading sessions, yet remain below their lifetime highs from September 2024.