The recent market rally in the midcap sector has also been driven by narrative stocks says Kotak Institutional Equities.

What Happened: Historically, the midcap segment of the market outperforms smallcap and largecap over the long term. The Nifty Midcap index has returned 20.72% since its inception, compared to the 15.39% return in the Nifty Smallcap index and the 11.84% return in the Nifty 50, according to NSE data.

According to Kotak, the rally in the midcap segment has contributed to “hype” stocks in the last 18 months. The top 25 stocks in the Nifty Midcap 150 index have contributed almost 50% of the returns in the last 12 months. While 36 stocks which have been the traditional favourites have got less than 10% return in the same period.

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RVNL, Oil India, Trent and Suzlon have been the stocks which had the highest returns in this category with returns of 335%, 299%, 246% and 187% respectively, the brokerage firm's data shows. 

The research firm says old favourites like building materials, apparel and footwear retailing, quick service restaurants (QSR) and speciality chemicals struggled. This underperformance has been there despite the optimism of the market and the exuberance in the midcap space. 

The brokerage said it needs to be seen whether the investment behind the investment stocks sustain or fizzle out. "Narratives have a short span of investment life, as can be seen in the fact that several of the narratives supporting the stragglers have been forgotten along with the stocks in the current rally," the brokerage added. 

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