Synopsis

September historically favors mid- and small-cap stocks over large-caps. Analysts anticipate this trend continuing, expecting limited upside for the Nifty. Heavyweight sectors show recent weakness, and foreign investor selling has resumed. Domestic fund flows remain concentrated in mid- and small-cap stocks. Market action is expected to remain stock-specific until fresh triggers emerge.

Mumbai: September has delivered mixed returns for Indian equity investors over the past decade, and analysts expect limited upside for the Nifty this year. Mid- and small-cap stocks could once again outperform, extending a trend that has historically favoured the broader market during the month.

Over the past 10 years, the Nifty 50 and Nifty 500 have risen in five Septembers each, with average losses of 0.27% and 0.17%, respectively, according to Bloomberg data. However, the Nifty Midcap 100 and Nifty Smallcap 250 advanced in seven out of the past 10 Septembers, the data showed.

ET Bureau

Nifty Midcap 100 and Nifty Smallcap 250 have outperformed large caps in 7 of the past 10 Septembers, even as heavyweights faced pressure

"September seasonality has generally favoured small-caps and mid-caps, while large caps have delivered mixed returns, and we see a strong probability of this trend continuing into the month ahead," said Sriram Velayudhan, senior vice -president at IIFL Capital Services. "Paper supply across both primary and secondary markets is likely to put pressure on large caps, as funds will look to liquidate holdings for participation."

The Nifty fell 0.4% to end August at 24,080.4. The NSE benchmark declined 1.2% during the month.

The Nifty Midcap 100 climbed 2.1%, the Nifty Smallcap 250 gained 2.5%, while the Nifty 500 index was flat in August.

Read more: NSE records Rs 39,718 cr turnover in closing auction session on first index rebalancing day

"We do not see much upside for the headline indices going into September, as heavyweight sectors such as banks, FMCG and IT have shown weaker performance recently, while FII selling, which had paused over the last few weeks, has resumed," said Siddarth Bhamre, head of institutional research at Asit C. Mehta Investment Intermediates. While foreign investors remained net buyers of equities worth ₹8,385 crore in August, they sold shares worth ₹7,986 crore on Monday, with the outflows largely driven by MSCI's August rebalance.

Bhamre said the Nifty has remained in a narrow range for the past four months and, without fresh triggers, is likely to continue trading within that band.

"However, domestic fund flows remain concentrated in mid- and small-cap stocks, which could continue to outperform. We therefore expect market action to remain largely stock-specific until fresh triggers emerge," he said.

Velayudhan said the Nifty is expected to remain range-bound between 23,800 and 24,600, with investors closely monitoring developments around geopolitical tensions.

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