AllstarchartsINDIA

Large-Caps vs Small-Caps Signal Weak Risk Appetite

We're outlining "Five Bull Market Barometers" that we're using to help answer the question of whether we're in a new bull market. One of them is the Nifty 100/Nifty Small-Cap 100. Since most stocks in India peaked back in January 2018, this ratio has been steadily rising…showing real risk aversion among market participants, not risk appetite. Institutions that need to be long stocks are hiding out in “safer” Large-Cap stocks as opposed to dipping their toes into “riskier” Small-Cap stocks that are down, in many cases, more than 50% from their highs. If they believed a new bull market was coming, wouldn’t they be picking up these stocks at major discounts? We need to see money flowing into Small-Cap stocks, creating a broad-based rally. Given this ratio is currently sitting at all-time highs, it continues to suggest market participants are not believing that the recent rally in stocks is anything more than a counter-trend rally within a bear market.

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