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  • Milan Vaishnav, CMT, MSTA

Special Note: Under-performance of Small Cap Index Against NIFTY; What It Means Going Ahead

Over the last couple of months, we have seen the NIFTY Small Cap 100 Index under-performing the headline NIFTY Index. If we analyze its recent performance, the previous 6-months have seen the NIFTY returning 8.76% while the NIFTY Small Cap 100 Index has lost 3.71%. The last 12-month performance of these two indexes paints a similar picture. While the NIFTY has gained around 11.34%, the NIFTY Small Cap Index has lost 12.53%.


Co-performance Chart for Nifty and Nifty Small Cap 100 Index

The chart throws up some interesting insights into the relationship between these two indexes. The above is the 10-Year co-performance chart of NIFTY and Nifty Small Cap 100 Index. There are very few times in the last ten years that the Small Cap Index has out-performed the Nifty. It is always the headline NIFTY index that has performed better than its Small Cap counterpart. Having said this, it is further evident that the under-performance of the Small Cap Index has increased over the recent month. A study of the above co-performance chart shows that the gap between the performance of these two indexes increased since the beginning of 2018. For the past 18-months, the under-performance of the Small Cap Index has increased as compared to the NIFTY.


The obvious question that arises given the present situation is – How can this under-performance be interpreted and what can we expect from the Small Cap Index going ahead from here. The possible answer lies in the following chart.


It is grossly evident that the Nifty Small Cap index has enjoyed a positive correlation with the NIFTY for most of the previous ten years. The above 10-Yr Weekly Chart of Nifty Small Cap Index shows that except for the few months of 2018, where the correlation turned negative, the relationship between these two indices has remained positive.

That the under-performance to the NIFTY begin in 2018 is also shown by the RS Line which changed its trajectory with the start of 2018 and slipped below its 50-DMA.

This RS Line is approaching its 10-Yr long pattern support lines. This means that the Small Cap Index is set to arrest the under-performance that it has seen against NIFTY.


The situation of RS Line, when compared against NIFTY near its major long term pattern support lines, can come in two ways. Either the NIFTY may take a breather, and in the meantime, the Small Cap Index catches up; or both the indexes rise with the Small Cap improving with a better momentum against the NIFTY.


In either case, the improvement in the Small Cap index is very likely, and if the small caps start rising while the NIFTY not marking fresh highs, this may also result into the front-line markets taking a breather in the near term.


Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)