Midcaps to become 2007 poster boy

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On account of profit booking witnessed yesterday, markets opened weak this morning, in keeping with its Asian peers. Markets are currently trading flat as the selling pressure continues. One strong trend that has, however, emerged in the New Year is the high expectation from the midcap space. 

 

2006 was a phenomenal year for Indian markets; we hit a number of milestones, not forgetting the crash in May and the volatility in December. Through all that, the midcap space was not really seen to be participating; in fact the performance was quite dismal.

 

However, 2007 has great expectations from the midcap stocks. Some experts have even referred to 2007 as the year of midcaps. So why is there so much excitement stemming from a lesser performing space in the market? Experts reveal.

 

According to Ajay Srivastava of Dimensions Consulting, the way to play the midcap game is to pick and chose from amongst a large number of stocks. "Pick up companies which have got excellent results, companies which have got M&A plays happening and one will see that results are going to be 30-40-50-60%."

 

"The problem is that when you look at a group of middle sector companies, the risk is higher, the liquidity is low and you expect them to outperform the index, but it is not going to happen this year and it has never happened in the world," he informs.

 

While choosing midcaps, he suggests looking at two barometers- sales and assets. "These companies should have an excellent sales growth rate. If the sales growth rate is 30-40%, you are safe. Secondly see whether these companies have assets, which give them value, whether in terms of sale like real estate or in terms of brand value, which can be acquired, or a manufacturing facility."

 

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