• : May 30, 2021
  • : B. Krishnakumar
Nifty MidSmallcap 400 Index: Case Study
As a trader or investor, we always look at the performance of the broader markets to get a sense of the overall breadth or health of the market. This exercise also helps in focusing attention in the appropriate sectors. If you are like me and use the Nifty 500 index as a proxy for broader markets, then you are in for some surprise.

Have a look at the daily chart of Nifty 50 index and Nifty 500 index featured below. Here is the Nifty 50 index chart.

Let us now take a look at the Nifty 500 daily chart.

Broadly speaking, you would not see much difference in the price action or price pattern in these two indices. This commonality in patterns is not surprising because the top 10 heavyweights in both the indices are the same.

It is the same set of stocks but with slightly lower weightage in Nifty 500 index. The message here is that Nifty 500 index might not be an appropriate index if you are looking at the performance of the broader markets.

In essence, by studying the Nifty 500 index you are just looking at a clone of Nifty 50 index, especially at the price level analysis or relative strength analysis

The Nifty MidSmallcap 400 index would be a more appropriate choice to study the performance and or the participation of the broader market. Here are the top 10 stocks in terms of index weight.

Let us take a quick look at the current market structure and relative performance of the Nifty MidSmallcap 400 index

A look at the daily chart of this index alongside the Nifty 50 index indicates that the midsmall cap index has outperformed the Nifty 50 index in the past few months. While the Nifty 50 index topped out on Feb. 16, 2021, and has since been in a broad consolidation, the Nifty MidSmallcap 400 index has managed to seek higher levels and is consistently making fresh all-time highs since Feb. 16, 2021.

A look at the Point & Figure chart of the Nifty MidSmallcap 400 index indicates a vertical count target of 10,082. The relative strength chart of this index versus Nifty 50 confirms that the Nifty MidSmallcap 400 index is clearly outperforming the Nifty 50 index.

The breadth indicators too convey a healthy picture of the mid and small cap index.

You can use either the Pattern Counter or any other method to short list candidates from this universe.

You can obviously use the Nifty 500 index for breadth calculation of the broader markets but using Nifty 500 as a proxy for broader market health may not be all that appropriate.