The rally in broader markets is likely to sustain, but investors need to be selective in buying midcap stocks due to their elevated levels, said Manishi Raychaudhuri, Asian Equity Strategist, Equity Cash Asia Pacific, BNP Paribas.

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"When the market breadth and the market, in general, is buoyant, midcaps and small caps do tend to rally. So, in the near term, such a midcap rally may continue for now," Raychaudhuri told CNBC-TV18.

However, he believes the midcap stocks are not cheap. If compared to their historical averages, the valuations of the NSE midcap or the BSE midcap index are more than one standard deviation higher than the long-term average.

"So, just jumping into a broad swathe, the midcap stocks would not be the right strategy; one has to search for the right stocks, look at the growth opportunities and also look for good management quality. So one has to be selective in the midcap and smallcap space right now,” Raychaudhuri said.

He said the valuation of the Nifty index is frothy but it has always traded at a premium versus peers.

“We are overweight. The transition to India, which we did about a month ago, has worked out quite well. The valuations do look a bit frothy, particularly in the top rung stocks, but India has always been a market like that that one has to be willing to pay expensive valuations for high quality,” he said.

Raychaudhuri believes fintech and e-commerce-related stocks are seeing huge interest.

He continues to have a significant holding in Indian frontline IT companies and believes IT companies can surprise on the earnings estimates which could continue. Raychaudhuri expects the earnings revisions to sustain for IT companies

Overall earnings season has been good in India and globally as well, he said, adding that the commodity sector delivered robust earnings.

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