What worked for the markets was favourable global investor sentiment and encouraging flows into the emerging markets following stimulus measures taken by central banks.
June appears set to be the best month for the broader market this year. Until Friday, nearly 90 per cent of the top 500 stocks had logged gains for the month, besides around 85 per cent of the Nifty50 components made positive strides.
This was despite several headwinds, such as rising COVID-19 infections, heightened tensions between India and China, and ratings downgrade by Moody’s Investors Service.
Experts said what worked for the markets was favourable global investor sentiment and encouraging flows into the emerging markets following stimulus measures taken by central banks.
The broader-market Nifty Smallcap 100 index is up 16 per cent in June, while the Nifty Midcap 100 is up 11 per cent after giving up some gains.
Both indices have outperformed the benchmark Nifty, which has risen 7.6 per cent month-to-date.
In April, the benchmarks had outperformed the small- and mid-caps and after some consolidation in May, the rally percolated to the broader-markets, say experts.
“The markets saw a trickling down of bullish sentiment from large-caps to mid- and small-caps in June 2020.
"This month, we saw the advance-decline ratio of more than 2:1 on four consecutive days between June 18 and June 23.
"This happened for the first time since June 2014.
"Also, the advance-decline ratio until Friday was 1.64, the highest monthly reading since May 2009.
"Such an advance happening in the backdrop of a sharply slowing economy and poor visibility of the start of the recovery in terms of timing is a bit surprising,” observed Deepak Jasani, head of retail research, HDFC Securities.
Some cracks have appeared in the broader market rally as the Nifty Midcap 100 and the Nifty Smallcap 100 fell 1.6 per cent and 1.4 per cent, respectively, on Monday as against only 0.7 per cent decline in the Nifty 50.
Despite this month, the return scorecard for the month for the broader-market has been encouraging.
Some experts are sceptical of the gains posted by small- and mid-caps this month.
“Many speculators from the retail segment have participated this month, and many are chasing small-cap stocks.
"If you see the last week, a lot of institutional selling happened both from domestic investors and foreign portfolio investors.
"Everyone knows that the June quarter will be a washout, tensions are simmering on the Indo-China border, and COVID-19 cases are rising.”
“Despite these factors, if people are putting in money, it has more to do with speculation than any fundamental reasons.
"There is nothing in the market which justifies the interest in small- and mid-cap stocks.
"This trend unlikely to continue,” said G Chokkalingam, founder, Equinomics.
A handful of stocks in the top-500 universe have doubled this month.
Some of them include Future Consumer, Shree Renuka Sugars, and Dish TV India.
Another nearly three-dozen stocks have posted gains of more than 40 per cent.
Among the 50 stocks that have posted a loss, the fall for most has been in single digits.
Photograph: Amit Dave/Reuters