No major moves either way. Yes, we did give up some gains, but there was nothing really exceptional about today. So it was just a day to pass and, you know, maybe the market will consolidate further before deciding whether to go up or down. There is a sort of confusion in the market whether this recent fall is finally over or if we are just off that sharp fall and are likely to witness another continuation of the downtrend, or are we consolidating here and there is going to be a counter uptrend from here on. This point of confusion still exists, and there are no clear-cut answers.

Today, we are going to discuss whether large caps are making a strong comeback vis-à-vis the other segments of the market.

Where is the market headed?

Market Overview

After six days of continuous fall, we have had some relief. However, the relief rally has no legs; every time the market starts to go up, it is slammed down. The bottom made three to four days ago is extremely important because below that, the right shoulder actually completes. You can see the left shoulder, head, and right shoulder formation. If that happens, we are certainly looking at much lower levels. Let me not use the word “certain,” because nobody is certain, but still, the probability of coming back to election day highs will become higher.

We haven’t had a two-day high close so far in the last several days, so that basic requirement to have a chance at higher levels is missing. Let’s wait for some more sessions. This is despite the fact that the U.S. is making new highs and there has been some slowdown in FII sales.

Nifty Next 50

The Nifty Next 50 is also extremely flat at 0.13%, so we are in a neither here nor there situation.

Nifty Mid and Small Cap

Mid caps are slightly up at 0.43%, actually looking much better than the rest of the market today. Small caps are also sticking to the average line at 0.47%, slightly better than the rest of the market.

Nifty Bank Overview

Bank Nifty is where the weakness was, down 0.7%. Bank Nifty also shows a similar left shoulder, head, and right shoulder potential, and we are below the average and below where we should have been in terms of a two-day high.

Advanced Declined Ratio Trends

Momentum trends across the market are very even, with 230 gainers and 250 losers—you can’t get more even than that. Halfway, no gain and half gainers, half losers. FII selling has slightly slowed down but is still about 5,000 crores, while DIIs are still buying nearly 4,000 crores.

Nifty Heatmap

On the stock front, HDFC Bank is down 0.7%, ICICI and Axis are down more than 1%, and TCS is down 2%. Mahindra, ITC, and Asian Paints are also down. However, Trend has been a complete outlier, performing very well in Nifty Next 50 and now performing well in Nifty as well. Reliance is absolutely flat, Hindustan Unilever is up 1%, and Hindalco is up 2.3%. So metals still look alright.

On the back of the Chinese move, stocks like DLF, LIC, JSW Energy, PFC, Dmart, HAL, IOC, Adani, and Sol all moved down. In contrast, DB Lab, Torrent Pharma, Jindal Steel, Gas 30, Vedanta, and United Spirits saw some upward movement.

Sectoral Overview

There’s no clear trend, but we see Bank Nifty, real estate, and autos down, while pharma and metals are up. Metals have risen by 10% over the past month, pulling away from other sectors. Pharma is also in the green for the month gone by, along with commodities and autos, while FMCG remains the poorest performer.

The performance of autos and metals suggests that the market is not looking for downward moves from this particular standpoint.

Sectors of the Day

Nifty Pharma Index

Several pharma stocks have moved up, including Ipca Labs, Mankind, Renewals, DBS, and Lupin, leading the pharma index to make new highs.

Stock of the Day

Usha Martin

In the stock spotlight, Usha Martin has seen amazing gains in two sessions, going from Rs. 340 to Rs. 420. It took nearly three to four months for this stock to come down, and now in just two sessions, it has launched back to the previous highs. This stock has performed wonders from Rs. 10 or even lower during the COVID bottom; we are now at Rs. 422.

Story of the Day

The strong comeback for large caps is a significant story. Large cap stocks are finding favor amidst escalating geopolitical tension and a wobbly market. According to a story by Prashant Mukherjee for ET, the mid cap-large cap ratio chart, which had been going up since 2023, has now flattened out. If it starts to go down, it would indicate that large caps are gaining an edge over mid caps.

Looking at the RSI on this, it shows that the steam for this ratio chart to run further may be coming to an end. If we see a long-term chart of the mid cap to large cap ratio, over 20 years, it has made several tops and bottoms along the way, and we are certainly nearer to a top than a bottom on this. The RSI is extremely overbought, similar to previous events when the mid cap to Nifty ratio was at higher points compared to their cyclical lows. If this were to come down, it would mean that either mid caps will go flat and large caps will continue to rise, or mid caps will fall while large caps will fall less, or mid caps will rise slower than large caps. Any of these scenarios can happen, but there is a good probability that we will see a shift in the coming time.

Let’s analyze previous tops and bottom cycles: August 2005 to 2009, August 2010 to 2013, and December 2017 to March 2020. In the first period from August 2005 to April 2009, while on the way up, mid caps after the initial hiccup did very well and even exceeded large caps. However, on the way down, large caps fell less than mid caps, with large caps up 44% and mid caps down 8%.

In the second period, from August 2010 to 2013, large caps were largely flat while mid caps lost 23%. In the third period, from December 2017 to March 2020, large caps lost 21% and mid caps lost 43% during the same period.

There can be very long time periods where mid caps will underperform large caps. It need not necessarily mean that mid caps have to crash; it may just mean that mid caps may slow down, go sideways, or rise slower than large caps. Therefore, it is very difficult to predict which market cap segment will perform the best at any point in time.

During up cycles, small and mid caps typically outperform large caps, while in down cycles, large caps generally outperform small and mid caps. There will always be a frenzy for one particular market segment type, so don’t fall for that frenzy. It’s better to have allocations in each market segment, maybe with some dynamic allocation from one segment to another.

However, largely speaking, it is very difficult to time movements from one to the other. It’s advisable to spread out allocations in a multi-cap or flexi-cap situation. Additionally, diversifying exposure to different asset classes is important because there could be situations where large caps outperform mid caps, but both may be falling. An asset class hedge where the asset class is at least rising can help mitigate such risks.

These are different ways to sustain your portfolio. Don’t just depend on one particular segment to outperform all the time, as that is not realistic.