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Last Updated : Aug 08, 2015 01:02 PM IST | Source: CNBC-TV18

Midcaps will outperform large caps over next 1 year: Citrus

Sinha says better than expected quarterly earnings is also prompting investors to take a more positive view of second line shares.

The party in midcap stocks is far from over, feels Sanjay Sinha of Citrus Advisors, contrary to the widely held view that large caps will start outperforming hereon.

"While you will have a market which is trending up, there will be lot more opportunities to be grapped in the midcap segment, and this segment will end up outperforming over the next one year," Sinha tells CNBC-TV18.

Sinha says better than expected quarterly earnings is also prompting investors to take a more positive view of second line shares.

"As against the muted expectations, there have been more (earnings) upsides in the midcap segment than in the large cap segment," he says.

Given the bearish outlook on crude prices and a downtrend in domestic interest rates, Sinha feels auto and auto ancillary companies offer an attractive risk-reward ratio at this point.

He expects pharma as a sector to continue to command premium valuations.

Below is the edited transcript of Sanjay Sinha's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.

Anuj: It has been a bottom of stock specific market for better part of last three-four months, do you expect that to continue and is there any theme that you are backing right now?

A: The outperformance of the midcap is also going to attract a lot more retail money into the same segment. In fact if you look at the one year horizon ending end of July, the Sensex and the Nifty went up by about 10 percent, the midcap index has gone up by about 24 percent in the same period. If you look at the performance of the domestic funds, the midcap funds as a category delivered on an average of about 35 percent return in the same period. Going by the historic behaviour of the retail investors when they look at the past performance and then get start putting in money, I would expect a lot more money to now come both from the institutional route into the midcap stocks and also the retail investor now warming up to investing in the Indian market in the same space. I have heard a lot of views saying that prospectively the largecap index may outperform the midcap index, I am not very convinced about this point of view because I think while you will surely have a market which will be trending up, there is a lot more opportunity to be grabbed in the midcap segment and that segment may end up outperforming in the next one year horizon also.

Ekta: From the midcap space in general if you compare it to the frontliners, do you think that they have beaten expectations in terms of earnings as opposed to the frontliners and in terms of the outperformance, which sectors might lead it within the broader markets if that is the case?

A: If you look at the performance of the midcap as a segment, I think against the very muted expectation is that there have been more upside surprises in the midcap segment than have been in the case of the largecap segment. In the largecap segment if you see more of the surprises have been confined to the IT as a space. Other than IT, we have not had too many sectors which have surprised on the upside. Now if we therefore take a very prospective look as to from the midcap, which are the sub-sectors, which could be potential outperformers in the next one year or more, given the twin combinations of the crude prices coming down and there is a likely possibility of the interest rates also to be cut in the next few months, I think auto and auto ancillary as a pack would be the one, which would surely give you far more risk reward ratio compared to the others. Secondly now that the government has gone on the frontfoot as far as these spending is concerned because while we have seen a legislative logjam obstructing some of the policies on the spending front the government has made fair amount of progress in the fiscal deficit numbers itself -- the budgeted amount has been spent quite heavily. So I think within the construction in the road sector, the infrastructure and capital goods would be the second choice of sectors within the midcaps.

Watch video for full interview



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First Published on Aug 7, 2015 12:05 pm
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