Indian stocks scaled this morning highs not seen since Jan 2008. The bellwether Sensex crossed 20,000 and the Nifty crossed 6,000 as soon as markets opened. Scaling big-figure marks in India – and possibly elsewhere – makes news, though the markets have fallen below those high-water marks in afternoon trade. Studying market components in any large up or down move provides interesting insights, mostly about the breadth of the market, the “flavors” and overall about the sustainability of the move. The graph below shows the CNX NIFTY in the past five years (Left axis, blue line) and the spread between % changes in the CNX NIFTY and CNX MIDCAP INDEX (spread measured in basis points, on the right axis, red line).
Typically one expects the mid-caps to expand faster in a rally (widening the spreads. As seen in the highlighted area of the graph), but this time around, even as the index has reached close to lifetime highs, this hasn’t been the case.
This could mean one of two things. One, investors have gotten smarter and not pushing valuations in the mid-cap space as large caps march ahead. Two, the frenzy is yet to begin. Take your pick.
Disclosure: I am net long in the market, though I have pared my positions substantially.