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Strong economic growth, range-bound crude prices and strong DII flows have mitigated the impact of FII selling during the past two months, as per a report by Prabhudas Lilladher.

BSE Smallcap and Midcap indexes have moved up by 62/64 per cent in the last 12 months, which is 2.3-3.3x higher than Sensex/Nifty and BSE 100. The return differential between BSE Small/Midcap and Sensex/Nifty has been 10-12 per cent, raising concerns on stretched valuations in small/midcaps, it said.

Nifty has shown consolidation with upmove of 2.5 per cent in the past six weeks as the RBI keeps policy rates unchanged, rising probability of no cuts by US Fed before end of 2Q (higher CPI), and FII selling of Rs 316 billion amid rising probability of NDA retaining power in 2024 general elections after strong show in state elections.

Oil and gas and power have been the best performing sectors, while realty, auto, metals, healthcare and capital goods have also seen a strong rally.

Banks and consumer (FMCG, retail, QSR, durables) segments seem to be the worst-performing sectors, while IT services have seen interest at lower levels with some recovery, the report said.

FII outflows have been Rs 316 billion CYTD while strong DII inflows of Rs 441 billion have negated the impact of FII selling and enabled 2.5 per cent move in Nifty CYTD, it added.

Domestic demand remains mixed as the growth is being led by government-induced infra capex, revival of private capex, and structural shifts happening across green energy, digitisation and EV.

"The rural recovery remains stunted and urban demand tepid; however, we believe the underlying demand is also showing a shift in wallet share as consumers spend on emerging necessities by use of new channels, a trend which will only accelerate as we march towards a $5 trillion economy by 2028," the report said.