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Are you also gung-ho on midcaps?

Published on Wed, Aug 16, 2006 at 17:47 | Source : Moneycontrol.com

Updated at Thu, Aug 17, 2006 at 10:10

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Midcaps are back into action and every one seems to be gung-ho about the index's performance. BSE Midcap index has notched 10% gain from the beginning of this month till now. With most of the experts singing the midcap saga, it seems FIIs and MFs also do not mind being into it.

Post May 11, midcaps were beaten more than the largecaps and there was no recovery in that space, but now the story looks completely different.

The stock return of companies like Uttam Sugar Mill , Mahindra Gesco , Mercator Lines , Gitanjali Gems , Peninsula Land , India Infoline , Deccan Chronicle , have appreciated by 30-58% in the period between Aug 1-14.

When most of the midcap stocks have beefed up their returns by 5% and above, thanks to retail investors, why should FIIs be away from it. In the June quarter, FIIs have increased their stake in nearly 115 companies listed on the BSE Midcap index in the June quarter as against March quarter.

Strides Arcolab have had the maximum increase in FII stake by around 38.4%. This is followed by Astra Microwave, Alok Industries , Anant Raj Inds , Apollo Hospitals , Era Construction , and their respective increase in FII stake are by 21.72%, 18.58%, 12.81%, 11.38%, 11.14%.

There are also these 81 midcap companies in which FIIs have reduced their stake. SREI Infrastructure Finance , Mahindra Gesco , KPIT Cummins , SRF , AIA Engineering , Blue Star , Orchid Chemicals are few of the company which have seen FIIs reducing their stake by 14.24%, 13.77%, 5.8%, 5.48%, 5.26%, 4.96%, 4.91% respectively.

Infact mutual funds also are participating in this rally. MFs like SBI Mutual Fund, Tata Mutual Fund are positive on the midcap space and are confident of the potential of midcap stocks in the clients portfolio.

Sanjay Sinha of SBI Mutual Fund, said, 'We have a couple of funds, which are exclusively midcap-oriented. For example, Magnum MidCap and Magnum Global. We also have a fund, which shuttles between largecaps and midcaps by the name of Magnum Multicap. There the exposure to midcap segment would be round about 27-30% at this point in time.

We had not vacated this space in the fall that we had seen and we were very confident about the stocks that we have in the midcap space. That is now showing in terms of recovery, that we now see in the NAV performance of these funds,"

Ved Prakash Chaturvedi of Tata Mutual Fund is of the view that over the next one year, midcaps may outperform because if one looks at the valuations of some of the high quality midcaps they have come down to corresponding Index level of 7000 or 7500 or maybe even lower.

"Various funds would have individual strategies. By and large now our view is that over the next one year midcaps may outperform because if one looks at the valuations of some of the high quality midcaps they have come down to corresponding Index levels of 7000 or 7500 or maybe even lower. Some of these are good companies they are growing and our sense is that this valuation differential will get corrected again going forward and over the next one year we would not be surprised if we see that the midcap segment in fact outperforms the largecap segment. The results, which have been recently declared, give us no reason to doubt the long-term growth story in many of these companies.

Talking about the action which one is seeing in midcaps, Investment Advisor, PN Vijay said, "What I have seen in this market in the whole of 2006 was that the largecaps have performed quite well right through, but normally the market is not like that. In a bull market, at some time the undervalued stocks, the midcap stocks, really freak out. This time also they did start freaking out, and then we had this big crash in May and June, so they fell with a thud.

What is interesting is that the retail investors have not lost hope. I was very worried about them walking out of the market."

Majority of the midcap companies are just 10-20% away from the peak on May 10, 2006. Marketmen suggest that good earnings season and reasonable valuation are making investors take interest in this segment. Hence, this is one sector to watch out for.

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