Why midcaps are missing the party?

Since their fall from grace in May 2006, the midcap stocks, which till then have been the darling of retail investors and FIIs alike have failed to join the market rally. When quizzed by moneycontrol, some experts felt it is a matter of time before midcaps too picked up momentum, while some others felt FIIs would continue to look at  largecaps for the time being. However, experts believe there have been selective participation by the midcaps.

According to, Sumit Rohra, Antique Stock Broking, the valuation gap between largecaps and midcap stocks are very high, wherein largecaps are trading at 20 PE and midcaps at 8-9PE. He feels that the valuation gap has to narrow down and it is only a matter of time before the midcaps start catching up.

He further said that good corporate earnings will be the next trigger for the sector. He said the new rally has been driven by FIIs who are buying more largecaps than midcaps. But by December–Jan midcaps stocks will appreciate by 25%-30% from their current levels. Earnings will be trigger for the sector."

Agreeing with Rohra, Upendra Kulkarni, Fortress Financial, said that the midcap sector is looking positive. There is a substantial run on B group and top companies. They will be followed by midcaps and in some way they are alreday participating.

Kulkarni feels that even though the focus of the large institutional investors are the frontliners now, but eventually they will start looking at stocks that are relatively cheaper and promising.

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