Chartists Weigh Mid-Cap, Small-Cap Stocks as Potential Market Play for Coming Months

Mid-cap and Small-cap Indices Poised to Retest Lifetime Highs

The Nifty has been experiencing a decline in recent months, but according to Ashish Kyal, the Founder and CEO of Waves Strategy Advisors, the mid-cap and small-cap indices appear well-positioned to retest their lifetime highs and continue outperforming the Nifty in the coming months.

Mid-cap and small-cap indices have been outperforming the Nifty even during the market decline in March and April, a trend that has largely gone unnoticed. A ratio analysis of the mid-cap index to the Nifty, as well as the small-cap index to the Nifty, clearly highlights this strong outperformance.

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The Nifty Midcap 100 is just about 3 percent below its lifetime high, whereas the Nifty remains around 9 percent below its peak. Additionally, the small-cap index has surged nearly 20 percent from its lows on March 23, compared to an 8 percent rise in the Nifty over the same period.

According to Kyal, the next few days of price action in the Nifty 50 will be crucial, with a high probability that a major bottom is already in place. Time cycle analysis indicates that May 27 will be an important period, post which upside momentum is expected to pick up.

From an Elliott Wave perspective, the index appears to be in wave 2, retracing part of the prior rise, and wave 3 on the upside could begin soon, provided the key support holds.

Kyal has identified two stocks that are on his radar for next week: RBL Bank and Chennai Petroleum Corporation. RBL Bank has witnessed a sharp rise on April 29, and this momentum is likely to continue as the stock has delivered a strong breakout supported by robust volumes, indicating potential upside towards Rs 370. On the downside, support is placed around Rs 320, making the risk-reward favourable for long positions.

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Chennai Petroleum Corporation is another buy candidate, reflecting strong outperformance within the energy sector and a decisive breakout. While some consolidation may occur, the stock is expected to move towards Rs 1,200, with support or stop-loss around Rs 1,080.

The Bank Nifty has shown some underperformance compared to the Nifty; however, prices are currently near the 54-day time cycle, which typically indicates a bottoming phase. A breakout above 55,400 would signal a strong upside reversal with potential towards 57,400. The index also has gap support near 54,300, which should remain protected, as any breach could trigger short-term pressure.

Meesho has recorded a sharp rally on April 30, rising nearly 12 percent with strong volumes, indicating a positive trend. However, fresh buying at current levels may not offer an ideal risk-reward; instead, dips towards the support zone of Rs 187 can be considered for entry, with a stop-loss near Rs 179 and an upside target of Rs 204.