BSE Smallcap index at all-time high, no hurdles for now

The BSE Smallcap index was just approaching its all-time high level during October 2016 first time after January 2008, when the demonetisation hit the entire Indian markets. The BSE Smallcap index hit its double top on monthly time frame in November and thereby corrected nearly about 50% of the prior upward move. Since then this broader index has rallied consecutively for the three months of calendar year 2017 to break its all-time high at 14447 in March 2017.

The BSE Smallcap index has duly outperformed the benchmark Sensex during FY16-17 where the Sensex gained 16.8% while BSE Smallcap gained 36.9%. During the last quarter of FY16-17, out of 775 stocks in the index, 278 stocks had outperformed the index by gaining nearly 20%. Some major stocks like, National Fertilisers, IBVENTURES, LT Foods, JP Associates and Jindal Stainless turned multibaggers, gaining more than 100% each.

All this has helped, Price-to-earnings ratio of BSE Smallcap index to hit 62.58 in FY16-17 from 46.73 in FY15-16. Moreover, the Price-to-book ratio too has hit above 2 at 2.01 as against 1.91 in FY15-16. However, considering the sector-wise dominance of the smallcap index, Finance and Housing related stocks top the market capitalisation. Finance and Housing related stocks have already started off with a revival, and we maintain a positive outlook owing to governmental reforms, going forward.

Smallcap index looks overstretched to many which may bring in some correction, however, long-term outlook is still positive. The 14-period RSI is quoting at 69, and is yet to hit the over-bought zone. Once it hits and sees a turnaround, we may see a correction up to 13595-13410 levels, followed by 13050 or even 12690. However, at least for now we do not see any clear indication of a correction and thereby the rally may continue for two more months. We see a medium-term outlook of nearly 13-15% upside in the first place i.e. up to 16560, followed by 17840 levels.