History suggests that while largecaps kick off a rally, it is the midcaps that lead the show as the bull run spreads wider and deeper
After three months of gloom (June to August), September offered some respite to investors as both the Sensex and the Nifty managed to break above crucial resistance levels, thanks to the fiscal stimulus provided by the Finance Ministry.
The frontliners lead the rally. The Nifty50 gained about 4.1 percent in September, outperforming both Nifty Midcap 100 (2.4 percent) and Nifty Smallcap 100 (2.7 percent).
History suggests that, while largecaps kick off a rally, it is the midcaps that lead the show as the bull run spreads wider and deeper.
After 2013's poor show, the midcap index rallied 54.7 percent in 2014 compared to a 29.9 percent surge in the Sensex.
Similarly, in the calendar years 2012 and 2009, the midcap index jumped 38 percent and 107 percent, respectively, after years of poor returns.
The midcap space is in a similar position now. In the first nine months of 2019, the NSE Midcap 100 index wiped off 8.8 percent against a 7 percent rise in the Sensex.
Even in the absolute market cap terms, Nifty Midcap 100 stood at Rs 15 lakh crore in September, down 31.8 percent from its January 2018 peak of Rs 22 lakh crore and 10.2 percent from its December 2014 highs of Rs 16.7 lakh crore. Meanwhile, Nifty50's market cap increased by 8.5 percent to Rs 84.5 lakh crore since December 2017.
"After reaching a peak of 42 percent in March 2018, the relative valuation premium of midcaps versus the Nifty has corrected sharply, owing to the sharp underperformance of the Nifty Midcap 100 versus the Nifty and the premium has turned into a discount and the Nifty Midcap 100 now trades at a 9 percent discount versus the Nifty," said Motilal Oswal in a report.
Based on the belief that midcaps might be the way going forward, research-based wealth management firm, PMS AIF World, collated a list of 12 Portfolio Management Services (PMS) schemes that have a substantial weight in midcap and multicap space.
All schemes generated positive returns for investors, returning 2-8 percent in September.
Portfolio Management Services cater to wealthy investors with portfolio sizes exceeding Rs 25 lakh. The professional fee charged by them is slightly higher than regular mutual funds (MFs).
Among the PMSes, IIFL Multicap, which manages an AUM of Rs 1,500 crore, gave the maximum return in September 2019 at 8.02 percent. The PMS' exposure to largecap, midcap and smallcap stood at 60.94 percent, 21.68 percent and 14.33 percent, respectively.
In the midcap category, Ambit Good and Clean gave the maximum return at 7.9 percent. The PMS manages an AUM of Rs 121.3 crore spread across largecap (20 percent), midcap (40 percent) and smallcap (3 percent).
According to Kamal Manocha, the founder of PMS AIF World, "for midcap investments through PMS, a multicap PMS should be a preferred route."
"Pure midcap and/or smallcap PMS is a very high-risk equity instrument and is meant for investors specifically looking to make such investments, and also have 10 yrs or more time horizon," he added.Disclaimers: The data analysed by PMS AIF World is up to September 30, 2019.
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