This week’s Chart of The Week revisits a topic we’ve written about many times over the last few years, Small-Caps vs Large-Caps.
Here we’re looking at the Nifty 100 vs Nifty Free Float Small-Cap 100 ratio back at its all-time highs set in 2013. Since bottoming in early 2018 there’s been resistance in this ratio as market participants poured into more defensive Large-Cap stocks to escape the carnage occurring in the Mid and Small-Cap space.
Click on chart to enlarge view.
So if this type of action has been evidence of weak risk appetite towards Indian Equities in general, a failure at these highs would be a welcome development for market bulls.
So far prices have done a nice job of working through this overhead supply and bearish momentum divergence over time rather than price, so the higher probability outcome looks like an upside resolution to new highs.
With that being said, if we do see this ratio beginning to roll over and Small-Cap stocks developing a trend of outperformance then we’re likely in an environment that Indian Equities are doing well.
On the other hand, continued underperformance from the group (as signaled by new highs in this ratio) would suggest more of the same chop is likely ahead for the major indices.
Thanks for reading and let us know if you have any questions!