Mid-, smallcap stocks overheated; rally an irrational exuberance: Analysts

The recent rally in the small-and mid-cap (SMID) stocks is not backed by fundamentals and is a case of irrational exuberance, said analysts at Kotak Institutional Equities in a recent report. Fundamentals of most companies, they said, have in fact worsened over the last few months. Yet, some analysts expect the bull-run in these stocks to continue amid intermittent corrections.

"There is no meaningful change in the fundamentals of most (mid, smallcap) companies; in fact, they have worsened in many cases. The primary driver of the rally appears to be irrational exuberance among investors, with high return expectations being driven by the high returns of the past few months," wrote Sanjeev Prasad, co-head of Kotak Institutional Equities, in a note