The ongoing market sell-off has severely weakened market breadth across the midcap and smallcap segments, with only around 15% of Nifty Midcap 100 constituents trading above their 50-day moving averages (50-DMA). The deterioration raises questions about the risks of buying the dip as selling pressure spreads across the broader market.
Against this backdrop, JM Financial has warned that the long-running outperformance of midcaps and smallcaps could be losing steam, opening the door for largecaps to regain market leadership. In its report 'The Great Rotation: Is the Mid & Smallcap Leadership Cycle Nearing an Inflection Point?', the brokerage points to weakening market breadth and early signs of a recovery in largecaps’ relative strength.
