In the upcoming size classification by the Association of Mutual Funds in India (AMFI), six stocks are likely to get upgraded to midcap from smallcap and five midcap stocks may gain the largecap status, while five newly listed stocks, including Life Insurance Corporation of India (LIC), could be upgraded to largecap and midcap.
AMFI’s semi-annual list of stocks categorised by size will take into account data from January-June 2022 and the final roster will be disclosed in early July.
The five stocks that may get upgraded to largecap from midcap category are Adani Power, Cholamandalam Investment & Finance, Bank of Baroda, Hindustan Aeronautics and Bandhan Bank, ICICI Securities said. Tata Teleservices (Maharashtra), KPR Mill, Tanla Platforms, Poonawalla Fincorp, Phoenix Mills and SKF India could get shifted to the midcap category from smallcap.
The brokerage firm sees a high probability of upgrade in terms of classification in the above stocks but there is a low possibility of Chambal Fertilisers getting a midcap tag against its current smallcap rating.
“Surprisingly, the type of stocks that will get upgraded (from small to midcap and mid to largecap) do not indicate a risk-off environment as most of them belong to cyclical and capital-intensive sectors such as financials and industrials,” the research firm said.
While observing these trends, ICICI Securities has taken the data from the start of January this year till now, and assumed prices will not deviate significantly from current levels over the next two days.
With the market correction across segments this year, the smallcap upper threshold market capitalisation fell below $2 billion.
“Midcap and smallcap upper threshold for market capitalisation falls to $5.4 billion and $1.9 billion, respectively, with respect to Nifty Midcap100 and Nifty Smallcap250 correcting 14 percent and 15 percent, respectively, from January 2022,” ICICI Securities said.
On the flip side, the number of stocks that could get downgraded from midcap to smallcap and largecap to midcap is expected to be higher than upgrades. “Quite a few of the downgrades are from growth, quality and defensive buckets," ICICI Securities said.
According to its research, IDBI Bank, HDFC AMC, Godrej Properties, SAIL, Zydus Lifesciences, Jubilant Foodworks and PB Fintech may be downgraded from largecap to midcap.
Stocks that could get downgraded to smallcap from midcap are Sanofi India, Ajanta Pharma, Aptus Value Housing Finance, Alkyl Amines, Gujarat State Petronet, Happiest Minds Technologies, IndiaMART InterMESH, GR Infraprojects, Natco Pharma, UCO Bank, Aditya Birla Sun Life AMC and Nuvoco Vistas Corporation.
Among them, four stocks—Sanofi India, Ajanta Pharma, Aptus Value Housing Finance and IDBI Bank—have a low probability of a downgrade by AMFI, while the others have a high probability, the research house said.
AMFI will take into account the average market capitalisation between January and June 2022 for reclassifying stocks into largecap (top 100 stocks on market capitalisation), midcap (101st to 250th) and smallcaps (below 250th rank).
The newly listed stocks that may be upgraded are from a mix of insurance, staples, discretionary, auto and transport sectors, going by the ICICI Securities study.
“Life Insurance Corporation of India, and Adani Wilmar may be upgraded to largecap, while stocks that could see an upgrade to midcap are Delhivery, Vedant Fashions and Motherson Sumi Wiring India,” the research house said.
The re-rating comes at a tumultuous time. The first six months of the calendar year have been a period of high volatility for equity markets, with record foreign portfolio investment outflows.
The BSE Sensex and Nifty50 fell nearly 9 percent, weighed down by the fallout of the Ukraine-Russia war, inflation concerns, faster policy tightening by central banks globally and consistent foreign institutional investor (FII) outflow.
The broader markets have seen a major correction, with the Nifty midcap 100 index declining more than 12 percent and the smallcap 250 falling over 17 percent this year. FIIs have net sold more than Rs 2.8 lakh crore worth of shares in the first six months of 2021, so far.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.