Concerns over a possible rate hike in the US are likely to keep the Indian markets volatile in the near term, and any technical correction on the benchmarks can lead to a sharper correction in the broader markets, say experts.

Midcaps stocks, though trading in tandem with the benchmark indices for now, remain on a sticky wicket.

"We have seen in the past that if benchmark indices have returned 30 per cent, midcaps and smallcaps have given 60 per cent. If the market starts correcting, you will see more downside in the midcaps. Most certainly, there will be a correction in the names that have seen a sharp rise in valuations," says Harshvardhan Roongta, chief financial planner, Roongta Securities.

According to Hemang Jani, Senior VP, Sharekhan, the market needed some kind of a trigger to cool off. With two major events behind us - the budget and the RBI's rate cut- the focus will shift to the earning season and of course the global cues.

He is of the view that there is a case for a mild correction of may be about 5- 7 per cent on the Nifty; and that would result in 20-25 per cent correction in broader markets.

"In the last nine months, we have had about four to five such cases where the correction was anywhere from 3-5 per cent. At the stock level, these correction have been anywhere from about 20 to 25 per cent. When the momentum is sharp on the way down it might scare us but that is how the markets are," he added.

Valuations of most midcap stocks have run up sharply and they look expensive at current levels as there has not been a pick-up in earnings.

According to Vibhav Kapoor, Group CIO, IL&FS, valuations of many companies have gone up in the last few months but corporate results have not been up to the mark.

"We are trading at more than 20 times FY15 and 17 to 18 times FY16 earnings; which means they are not extremely expensive but they are definitely on the higher side at this point of time," he said.

Analysts are advising cautions that such expensive stocks might not move higher and give negative returns year on year.

"It is distinctly possible that 50 per cent of overall stocks listed on the exchanges will be at the same price or lower after one year. Investors should look at their portfolios very carefully and understand that a lot of stocks have gone up for no rhyme and reason," says Mehraboon Irani, Principal & Head-Private Client Group Business of Nirmal Bang Securities.

According to him, there has been a lot o run up in the stocks, and a correction of over 20-30 per cent in such midcaps should be used as a buying opportunity for long term.

Source: 10 March, 2015, The Economics Times