From a technical perspective, after hitting a bottom in October, mid-cap and small-cap indices marginally outperformed the Nifty, and right now, they appear to be on the verge of a fresh breakout
Bulls have managed to take control of benchmark indices in December thrice in the last five years. The trend is more consistent with mid-caps, which rose in four of the last five Decembers.
Although historical data points to a positive move this month, the market has not done too well in 2018. The BSE Midcap and BSE Smallcap indices have fallen around 18 percent and 28 percent from their respective highs.
That said, concerns of mid-cap and small-cap stocks trading at high valuations have largely been addressed, thanks to the fall this year. But that does not mean all mid-caps are ripe for picking, experts suggest.
“History most of the time rhymes rather than repeat itself. Midcap stocks outperformed in 2004-2007 market run-up but did not perform well in 2014-2017 upcycle. So the factors which help midcap stocks to do well are different in different economic cycles,” Naveen Kulkarni, Head of Research, Reliance Securities, told Moneycontrol.
“Having said that, a secular midcap outperformance, as seen in the last four of the five years seems quite unlikely. There are new challenges which have cropped up for mid-cap companies in terms of liquidity, valuation, and growth,” he said.
Kulkarni added while a short-to-medium term outperformance cannot be ruled out, it is unlikely that mid-caps will continue to outperform the broader market over the next 12 months.
From a technical perspective, after hitting a bottom in October, mid-cap and small-cap indices marginally outperformed the Nifty, and right now, they appear to be on the verge of a fresh breakout.
The Nifty Midcap 100 has been moving in a narrow range of 17,705–17,209 for the last couple of weeks. So a sustainable breakout above 17,705 will result in a test of its 200-DMA, which is placed at around 18,630.
“However, the outperformance of midcaps and smallcaps need to be understood in a larger context as in a strong bull market it is nothing unusual for mid and small-cap stocks to outperform,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, told Moneycontrol.
“As the current bull market is already a matured one and may be on the last leg, investors need to remain cautious and very selective in this space without expecting a secular rally in this space,” he said.
Here are 10 mid-cap stocks that experts think could prove to be worthy buys:
Analyst: Vipin Khare, Director- Research, William O'Neil India
The stock has seen good accumulation from mid-October. It has shown one of the strongest relative price strength in the current environment.
Although, it is still repairing itself technically and we believe if the stock manages to stay above Rs 610, it will be a good time to accumulate the stock and a hard stop loss of 8 percent from current levels should be considered.
The stock is trading 5 percent above its 200-DMA. In November, the stock witnessed strong buying demand and has been in accumulation which was evident by daily price volume action in the month gone by. The stock doesn't have any resistance till its recent high of Rs 1,578 and has a crucial support placed around Rs 1,200.
The stock has seen good accumulation in the past 5-6 weeks. It is actionable right now. With good growth prospects ahead, the stock has to consistently stay above Rs 1,600 to confirm the current uptrend. It has support placed at Rs 1,380.
TeamLease recently broke out from a narrow range with the help of three consecutive days of strong price volume action. Its 50-DMA just crossed above its 200-DMA which shows strong price momentum.
The crossing of Rs 3,310 will be a very bullish signal for investors in our view. It has support placed at Rs 2,800 (~6.5 percent below current levels).
RBL Bank has recently crossed 50 and 200-DMA with strong volumes. The current uptrend will be confirmed if stock crosses and stays above its pivot price of Rs 652. On the downside, its 200-DMA line at Rs 530 should act as support for the stock.
Analyst: Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in
This counter appears to have registered a breakout from its 12-day old narrow congestion zone between Rs 78-73. As a big spike was seen on December 3, it may undergo profit booking in the next sessions.
Hence, positional traders should adopt a two-pronged strategy of buying now and on declines around Rs 78 for a target of Rs 89. A stop loss suggested for the trade is below Rs 76 on a closing basis.
This counter appears to have registered a short-term bottom around Rs 86, after retracing 62 percent of the last leg of the rally from the lows of Rs 72 to Rs 108, as it has registered a price and volume breakout.
Hence, positional traders should buy at the current prices and add further on declines if it corrects to Rs 89 for a target of Rs 108. A stop loss suggested for the trade is below Rs 85 on a closing basis.
Analyst: Vikas Jain, Senior Research Analyst, Reliance Securities
CNX Midcap Index
CNX Midcap Index has rallied strongly from its 200-week support levels near 15,800, witnessing a strong pullback to trade near 17,600.
It is trading in a narrow range for the last four weeks and we believe that it will outperform from current levels by the month end. On the higher side, the first target would be near 18,100 followed by in the range of 18,500-18,600.
The stock has completed its 61.8 percent correction of the entire move (Rs 492-1,378) and is trading above Rs 800. It is making higher bottoms on daily and weekly charts with a reversal in RSI from its oversold levels.
We believe that the stock is ripe for a reversal from current levels for a target of Rs 960-975 with a stop loss of Rs 805.
The stock has seen a vertical fall from the high of Rs 512 to make a low below Rs 300. It has witnessed a strong support near its 200-week average with positive momentum and crossover of short-term averages on daily charts.
One can initiate long at current levels for a target of Rs 365 and a sustained crossover above the said level would give an extended target of Rs 390 with a stop loss of Rs 303.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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