Red flags going up on excessive valuations of small cap stocks

NEW DELHI: There are indications of exhaustion in the market rally, particularly in the broader market, says V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Higher valuations are constraining the bulls and there are no major positive triggers in the near-term that can sustain the rally beyond a point, he said.

Expectations of backloading of the rate cuts from the Fed and the consensus lowering of the number of rate cuts this year also are likely to restrain the rally in the US market. This will have its repercussions in the Indian market too, he added.

Kotak Small Cap joining Tata and Nippon small cap funds in putting restrictions on investment in their small cap fund is another red flag regarding the excessive valuations of the small cap segment, he said. Investors should take cues from this and partially move money to the safety of large caps, he said.

Deepak Jasani, Head of Retail Research, HDFC Securities said stocks in the Asia-Pacific region were trading lower after Wall Street saw a pullback near record highs as traders await remarks from Federal Reserve speakers.

Nifty ended lower in a volatile session on Monday. At close, Nifty was down 0.41% or 90.7 points at 22122.1. Nifty closed lower by forming a small candle (127 points high low range) on Monday. It currently seems like a correction of the last upmove. Nifty could now face resistance at 22249, while the 21893-22050 band could offer support in the near term.

BSE Sensex is trading at 72,913.54 points, up by 123.41 points. TCS, Powergrid, Titan, HCL are up more than 1 per cent.