It started as a good day for markets but the frontliners failed to hold their gains at the higher levels and ended near the lowest point of the day. The rally in the midcaps and smallcaps continued and the market breadth was significantly positive. Nifty closed flat at 5,908, while Sensex shut shop at 19,633 down 65 points.

Analysts believe that it is better to stick to the midcap index and also some of the leading frontline highly liquid counters rather than get into counters which have just about started seeing explosive volumes because volumes can dry up as fast as they have spurted up.

Ajay Srivastava of Dimensions Consulting believes a basic shift has taken place in terms of the demand and supply in the midcaps and smallcaps space. He said there is a lot of liquidity in the stocks. As an investor one should ideally allocate 20-25%, not more than that of the portfolio to midcap and smallcap, he explains. “The critical element is that whenever there is a correction, in the liquid stocks, in the mainline stocks, you can sell out. Here, there is no exit for months.” he adds.

So, he said, people must be very clear that they will have to hold these stocks for longer periods and volatility is very high. Therefore, he advises, not to allocate more than 20-25% to these stocks, irrespective of the returns of 30-35%.

Dipan Mehta, Member Of BSE & NSE feels that clearly there is a changing complexion of the investors in the market and the liquidity flows over the past couple of months was from institutions and the FIIs which were driving these stocks over here and "therefore we saw the kind of outperformance in the large cap stocks and the index stocks but over the past about 15-20 trading sessions, we have seen the emergence of the Indian retail investors category into the market and that’s the reason why we are seeing so much of action and pick up in volume in some of the midcap and the smallcap stocks".

Experts feel that there are typical stocks which are quite illiquid and even with the small dose of capital coming into these counters, they have fantastic moves, which is seen over the past few days.