Indian markets have been hovering around their all-time high for the past two months and majority of index stocks have gained in the rally which was witnessed towards the end of year 2019. However, for many investors, the valuation of majority of index stocks seems overstretched. Retail investors generally bet on mid-cap and small-cap companies as they offer quick returns compared to blue-chip stocks. In the recent weeks, many mid-cap and small cap companies have witnessed a strong rally.

Metal, auto ancillary, financial services and cement stocks in the mid-cap segment have witnessed bull-run in the recent weeks. Supreme Infra has witnessed 29 percent gain in the last one week while IRB Infra registered 22 percent gains over the same period. Simple Infra is another stock from infrastructure segment with 28 percent gain over one week.

Vipul Limited has been star performer with 60 percent gains over one week. Force Motors, Electrosteel Castings and INOX Wind are looking strong on the charts.

Talking about market movement, SAMCO Securities founder Jimeet Modi said, "Markets during the week inched higher with heavyweights, but this time mid-cap joined the rally and gave a phenomenal run-up. The earnings season has set in and numbers look encouraging when compared on a year-on-year (YoY) basis, thanks to corporate tax reduction."

Modi added, “Signs of a conspicuous rally in the second rug stocks from various sectors largely signal that valuations of first-line quality stocks are at rich levels. This is what is making these second-tier stocks move higher in a so-called valuation catch up the rally.”

In the mid-cap space, Tata Global Beverages, Hindustan Aeronautics, Berger Paints, IGL and Emami registered smart gains during the week.

Retail investors generally bet on mid-cap stocks as they offer quick returns. However, volatility is higher among these stocks compared to blue-chip counters. Investors should exercise caution while investing in small cap and mid-cap companies.