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Look at the midcaps in 2017-2018, again you had this period of excess euphoria in the market at that time, many of the midcaps struggled for the next five years after that. Again, we are seeing a period where expectations have run well ahead of the fundamentals. My best sense here would be the stock prices would correct whenever they do but I have no expertise to forecast stock prices or they will time correct over a period of time.
"Even the earnings will come through, volume growth will come through, revenues will come through. I am not debating on that. We will see growth in most sectors in the country. But we will probably see multiples coming down at the same time, which means stock price returns may be very muted going forward. It is a simple fact of valuation. If your valuation is high, your chances of making money are probably low."
The recent rally in small and midcap (SMID) stocks is not backed by fundamentals and is a case of irrational exuberance, analysts at Kotak Institutional Equities said in a recent report.
The fundamentals of most of these companies have, in fact, worsened over the last few months, they noted.
Yet, some analysts expect the bull run in these stocks to continue amid intermittent corrections.
The selloff in small and midcap stocks is in contrast to lacklustre trade in Nifty and Nifty Bank. Nifty PSU Bank lost over 1% with Punjab and Sind Bank, UCO Bank and Maharashtra Bank leading the downside with a 5% fall.