Have a look at the major mid cap and small cap indices or at least look at the price movements of well-known small cap and mid cap stocks, they’re all falling since the beginning of May. After reaching multi-year highs, most of mid cap and small cap stocks lost their bullish momentum in last couple of weeks. Observe the 4h chart of Nifty Midcap 100 Index, current scenario becomes very clear. What’s the reason? It all has to do with Mutual funds.
Small cap and Mid cap stocks are falling because of Mutual Funds Restructuring
The primary cause behind the fall is SEBI guidance on Mutual funds Re-categorization and rationalization. Recently changed norms and Principles placed some restrictions on holding mid cap and small cap stocks for Mutual funds. As a consequence of the policy, some major fund houses are liquidating their Holdings as well as diversifying their liquidity on large caps and Nifty stocks. When every Mutual fund started to restructure their portfolios at once, mid and small cap stocks took major hit, buying pressure declined dramatically. As a result, we are seeing the downtrend in Price action
From last couple of weeks, we can see some buying activity within the downtrend. These upward price swings are reflections of counter trend Traders. Looks like some smart money players are picking up good quality Midcap and small cap stocks at a discount. Professional traders would prefer these types of market conditions for bargain hunting. Investors and traders both must pay attention to small cap and mid cap stocks in coming weeks. Traders can look at Price action for Trend continuation or Trend reversal setups whereas Investors should use the recent corrections for selecting good quality stocks at a better price.
