It's Showtime For Mid-Caps And Small-Caps !
The BJP’s saffron wave created many records in the just concluded Lok Sabha elections and the Indian markets too witnessed a green wave as the Indian equity benchmarks recorded a three-day winning streak post May 23 and the record closing spree continued thereafter. However, on May 29, the equity benchmark witnessed a minor blip in the form of profit-booking and, for the first time in the past four trading sessions, it formed a lower high-low on May 29.
On the domestic front, now that the political uncertainty is behind us, everyone is looking forward to the swearing-in ceremony on May 30. Well, we all know who will be the PM, but all eyes will be on the composition of Modi 2.0 cabinet--who will hold the allimportant four portfolios of Home, Finance, Defence and External Affairs. The choice of Finance Minister will be something the D-Street will be awaiting eagerly. With Arun Jaitley's exit on health grounds, the spotlight will now be on Piyush Goyal as we believe he will be the top contender for this post as the interim budget was presented by him. Also, Goyal represents a more friendly face of the government. The stock markets, in particular, and the industry, in general, will be pleased to have Goyal at the helm of the Finance Ministry. As we bid farewell to the Q4 earnings, the corporate performance reflected a mixed picture, with cement and select private banks catching the eye of the market participants with their outstanding performance, while the auto companies continued their poor performance.
On the global front, the markets were hit by trade worries and Italy's intransigence on the budget. The uncertainty over the trade war between the US and China continued to take its toll on the global markets. Also, the global growth concerns resurfaced as the US has seen its yield curve inverted the most since 2007 and that has typically been a forewarning of a recession in the US. The Dow Jones Industrial Average closed at its lowest level in nearly three months, plunging below its 200-day moving average. Meanwhile, the tech-heavy Nasdaq Composite index and the S&P 500 index were hovering near their respective 200-DMA.
Now we look at what could possibly be some of the triggers in the coming weeks for the markets. On the macro front, investors will track GDP data and infrastructure output for the month of April. Also, the auto sales figures for the month of May will start trickling in June 1 onward. After that, it would be about the RBI interest rate decision and the progress of monsoon. Monsoon has always been very vital for the rural economy and a good monsoon would drive the Indian growth story.
So, now the million-dollar question for the investors who were waiting on the sidelines for the political uncertainty to settle is: Where to invest now? Well, we will say it is an ideal opportunity to enter the market and, in particular, the broader markets, i.e. mid-caps and the small-caps, as these stocks are looking pretty attractive. Both the indices Nifty Midcap and Smallcap have formed a ‘golden cross’ on the daily time frame chart recently. The 'golden cross' is an important technical indicator which indicates the potential for a major rally. The golden cross appears on a chart when a short-term moving average crosses above its longterm moving average. After peaking in the month of January 2018, the Nifty Midcap and Smallcap indices have been underperforming the frontline indices. As the saying goes, strike while the iron is hot, so now is the right time to invest in quality mid-caps and small-caps in a phased manner. A marvellous wealth generation opportunity awaits the patient investor.
