What are Dipan Mehta's best picks in the midcap scape?

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What are Dipan Mehta's best picks in the midcap scape?

At an Investor Camp organised by CNBC-TV18, Dipan Mehta, Member, BSE & NSE shared his perspective on best midcap stocks to pick.

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ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Mahindra Life BSE | NSE 29/05/12 Are Mutual Funds betting on Mahindra Life? Other Stocks in this news Mahindra & Mahindra Financial Services | Educomp Solutions | Titan Industries | Jubilant Foodworks |

At an Investor Camp organised by CNBC-TV18, Dipan Mehta, Member, BSE & NSE shared his perspective on best midcap stocks to pick.

Mehta said, "The demand is always there and its just matter of rolling it out. Titan can be a good example, which has been the best midcap over the past two-three years. The best money is made in midcaps especially when the earnings also go up and the price earnings multiple also expand. This is very rare but whenever it comes through you will see that those stocks will always be explored."

He further added, "Take an example of Mahindra Group. Now Mahindra Lifespace , is a bit on the sideways Look at M&M Finance , within the large business houses if they are doing a midcap kind of a business, those are the first companies one should put an eye out for and there are entrepreneurs who go through the ups and downs and finally they are in terms of some kind of scale and those are the ones which work out pretty value."

When asked what happened to Educomp , Mehta said, "It was a new industry, new business and dynamic management came into play and that was the actual winning formula. But to sum-up, it has to be management-management and then business because very often what happened in midcap investing is that you may have two-three winners and then seven stocks do badly and mostly because of the management."

So, that's the first thing I look out for that if there is quality in place, if the people are dependable, they have a track record, what is the kind of corporate governance they are following, who are the auditors, who are the independent directors, what is the reputation in the market. These are things one takes into consideration, he added.

Here is verbatim transcript of his comments. Also watch the accompanying videos for the full show.

Q: How do you get your head around the valuation argument because that is sometimes more sensitive for the midcaps and we talk often about the market and there is still such a big gap in valuations between what these Nifty stocks that PN Vijay and Udayan were talking about versus what the large universe outside Nifty-Fifty is doing in terms of where its trading at?

A: Valuation is always some element of art and imagination but you would be surprised to see that some of the midcaps are more expensive than the largecaps, Titan , Jubilant Foodworks trade more expensive than most of the listed index companies.

In the good old days you could actually get them at 14-15 PE multiple and they were growing at 25-30% but with more and more research taking place, now its becoming very difficult and even if you get these midcap stocks with a price earnings to growth of about 0.5 to 0.7. it is alright but what is happening in the market that in the last four-five years, the ideas are so few that the minute you find one-two good ideas people quickly jump on to that bandwagon. Like Jubilant Foodworks, it's a crazy valuation...

Q: Who were a fan when the IPO came out, right?

A: Yes, we have an investment and we are into a situation where everyday it keeps rocketing up. So, what happens that if you have a good story, the valuations certainly start looking so expensive on paper and then still continue to rally. In case of Titan, even Rs 1,000 lower was always expensive but the results come through and now every mutual fund wants to have it in their portfolio, investors, HNI want to have it.

It becomes fashionable to have that stock in your list of holdings. So, once you are in a winner, you can let go the valuation little bit unless something is going wrong in the business but by and large if you get it at 50% of its growth that should be the benchmark or the thumb rule for making an entry particularly into that stock but sometimes its not that simple as trying to understand what the growth could be and arrive at some kind of valuation.