The broader market raced ahead of Sensex and Nifty to scale fresh peak on Tuesday and over 140 hit fresh 52-weeks high on the BSE suggesting strength in the market.

The S&P BSE Midcap index rose to a fresh record high of 13,904.73 while the S&P BSE Smallcap index scaled a fresh peak of 15,489.47.

As much as 5 stocks more than doubled investors’ wealth in the last one year which includes names like Indian Bank, Sun TV, Bajaj Finserv, Piramal Enterprises, and Bank of India.

Smallcap stocks were not behind as nearly 100 stocks more than doubled investors’ wealth in the last one year. Indiabulls Ventures rose as much as 540 percent, followed by Tata Metaliks which gained 44 percent, and Jindal Stainless rose 329 percent in the same period.

The liquidity driven rally has already taken many mid and smallcap stocks to fresh record highs but analysts’ advise investors to stay with the winners or book profits partially as the uptrend is likely to continue.

For April, foreign institutional investors (FIIs) have pumped in Rs 2,417 crore in the domestic equity markets. On a year-to-date basis, they have bought shares worth Rs 42,048 crore, as per data available with depository NSDL.

Even though valuations of many small and midcap stocks might look stretch but there is plenty of room for upside in stocks belonging to sectors such as agriculture, financial institutions, cement, etc., among others.

“We believe that cherry picking in the agricultural sector, especially sugar and fertilizer, logistics and those expected to gain from governmental action could be accumulated,” Anil Rego, CEO & Founder of Right Horizons Financial Services told moneycontrol.

“The strong Rupee is positive for importers who should be preferred over exporters who are uncompetitive due to the overvalued currency,” he said.

What should investors do?

The midcap and small cap index is looks overvalued but there still exist few stocks within the space which are trading at decent valuations.

Well, history might have some insight to offer, which suggests that the broader market has always done better when the economy is in the expansion phase.

“As Midcaps and smallcaps, companies can only give exponential returns hence people are flooding their money in this space. But, at such high valuations the market has become a stock picker markets where few companies might turnout multibagger from here on despite index trading at a 52-week high,” Foram Parekh, Research analyst, Bonanza Portfolio Ltd told Moneycontrol.com.

“There are few companies within the midcap and Smallcap space which have very good fundamentals, low valuations, good management and where premium valuations are justified but such companies are very few,” added Parekh.

From the technical perspective, it would be prudent to still play the stock specific game, albeit while booking profits at every opportunity to do so, suggest experts. By doing this, investors would be able t0 avoid a possibility of a cliffhanger like situation.

Dipen Sheth, Head - Institutional Research, HDFC Securities told Moneycontrol.com that small and midcaps have outperformed massively in the recent past.

“A catch up by largecaps is likely over the next two years. However, successful bottom-up stock picking in individual cases typically leads to outperform in the midcap space,” he said.