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View: Time to pick high quality midcaps and smallcaps

The risk-reward continues to be favourable in mid and smallcaps compared to large caps.

ET CONTRIBUTORS|
Dec 09, 2019, 09.35 AM IST
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One may look to initiate longs in high quality midcaps and smallcaps as the recent correction offers an opportunity.
By Vikas Jain
Senior research analyst, Reliance securities

Where Are We: Last week the Nifty 50 index lost 1.1 per cent as it failed to cross the previous week high. Selling intensified in interest rate sensitive sectors after the RBI policy that held rates and slashed GDP growth forecast to 5 per cent. Barring IT that gained 2 per cent, we witnessed profit booking in PSU Banks and Infra index that declined by 7.8 per cent and 4.5 per cent, respectively. Metals, auto and power declined by 3 per cent each, while Health, FMCG and Energy index declined by 1 per cent on an average for the week. Midcaps and smallcap indices, too, declined by 2.8 per cent and 2 per cent, respectively for the week.

What Is In Store: All eyes will be on the outcome of US Fed and ECB meeting in the middle of the week. Nifty 50 index has closed below the short term average and would find support at 11,750 levels on the downside, a stable move above 12,100 mark would turn the monthly candle positive to trade near all-time high providing momentum in midcaps and smallcaps.

What Could Investors Do: One may look to initiate longs in high quality midcaps and smallcaps as the recent correction offers an opportunity. The risk-reward continues to be favourable in mid and smallcaps compared to large caps. We continue to remain positive on pharma over the long term and any decline should be used to add longs as the index has bottomed out on multiple longer time frames.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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