Midcap and smallcap valuations are rich and no longer lucrative on the risk-reward metric, Motilal Oswal Institutional Equities has said in a report.
"The gradual unlocking of the economy and improved demand backdrop still offer bottom-up opportunities. Consistent earnings delivery v/s expectations are critical for further outperformance in our view. The outperformance of midcap and smallcap indices have gone past their earlier benchmarks on multiple fronts - consecutive months of positive returns, 12-month rolling returns gap v/s the Nifty, relative valuations, and contribution to overall market capitalization," the firm has said.
According to it, the NSE Midcap 100/NSE Smallcap 100 indices have generated consecutive positive monthly returns of 102%/67% in the last 13 months/8 months.
"This is the best such period of consecutive months of positive returns for the NSE Midcap 100. The Nifty Smallcap 100 has bettered this only once in the past. Despite these recent sharp gains, the NSE Midcap 100 and NSE Smallcap 100 indices have underperformed the Nifty since their previous peaks of Dec'17. The Nifty has gained 51% since Dec'17, while the NSE Midcap 100/NSE Smallcap 100 have returned 28%/6%," Motilal Oswal Institutional Equities has said in its report.