Midcap rally to continue: Birla Sun Life MF

A Balasubramaniam, CIO of Birla Sun Life Mutual Fund said that there might be more incremental flows coming out of the midcap space and the upmove in midcap stocks is due to that.

He added that as a fund house, they have been focusing on banking and financials. They also expect decent returns from some sections of the media, going forward.

Excerpts from CNBC-TV18’s exclusive interview with A Balasubramaniam:

Q: Do you think the gain is now sifting to the midcap space? What would you bet on sectorally from hereon?

A: Some of the triggers to drive short-term price performance of some of the companies, especially in the largecaps, is missing.

At the same time, there is enough space in midcap mainly driven by valuations coming from the engineering, capital goods and some of the media sectors, where one can find some kind of participation coming in.

Purely because of that reason, I would also assume some shift will happen in terms of more incremental flows coming out of the midcap space. That is why we see some upmove on the midcap stocks.

Every investment has to be driven by the performance of the company and the outlook they have been projecting, going forward. Where the valuations are supportive and where there is a bit of corporate action, participation is increasing.     

Q: We have heard a fair amount about midcap technology. We have seen a huge run-up in midcap banking. Which areas currently hold value for you?

A: Ultimately, everything will have to be driven by valuations. There has been a trend where re-rating of PE has also been happening in some sectors, like the commodity space. We have seen that happening in case of mining, metal and even in the case of cement.

As a fund house, we have been focusing on banking and financials. In some sections of the media, we still expect decent returns, going forward.

In cement, the mid-size cement companies, where we feel that earnings will be supportive of current price movements and engineering, continue to hold our conviction. This is especially so, at a time, when the interest rates are either likely to remain neutral or soften, as we move forward.

We have also taken a bit of exposure in the interest rate sensitive sectors, mainly falling in the construction space. But otherwise, what needs to be seen is where the midcap companies, in relation to largecap, in terms of valuations, PE multiples and earnings growth potential of some of these companies are offering today. That is why in relation to the broader market, there are stocks which fall in the market cap between USD 1-2 billion space, where valuations at this point of time are reasonably acceptable, in terms of taking exposure. That is where the focus would remain.