Nifty Midcap 100 tops 38,000-mark: What's fueling the rally in broader indices?

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Nifty Midcap 100 topped the 38,100-mark on Monday, August 21, after a rebound in the global market after a significant correction prompted buying in domestic equities, particularly within the IT sector. Domestic benchmark indices Sensex and Nifty50 closed with decent gains on Monday, snapping their two-day losing run, on the back of positive global cues. Sensex ended the session with a gain of 267 points, or 0.41 per cent, at 65,216.09 while the Nifty50 rose 83 points, or 0.43 per cent, to settle at 19,393.60.

Mid and smallcaps outperformed the benchmark on August 21 as the BSE Midcap and Smallcap indices ended 0.87 per cent and 0.71 per cent higher, respectively. According to analysts, the current strength in broader indices are in a sweet spot to perform better than the large and small cap companies. The mid and small caps also have a relatively higher margin of safety, compared to the larger indices.

Analysts believe it is just a matter of time before the broader indices hit all-time highs. The Nifty, however, is still 3 per cent and the Sensex 3.5 per cent away from the all-time highs hit on July 20. Amid the current consolidation, the major global headwinds for markets are come from the rising US dollar and bond yields.

On the domestic front, record-high vegetable prices that pushed retail inflation to over one-year high in July, is also a major headwind for commodity and stock markets. India's consumer price index (CPI) inflation surged sharply to a 15-month high peak of 7.44 per cent in July 2023, driven by high food and vegetable prices. July CPI print had breached the Reserve Bank of India's upper tolerance limit of 6 per cent for the first time in five months.