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The NSE Midcap index which more than doubled in the last three years has outperformed Nifty by a whopping 50 percent in the last five years, Kashyap Pujara, ED & Deputy Head Of Research, Axis Capital said in an interview with CNBC-TV18.
Midcap stocks have outperformed benchmark indices amid the muted earnings growth. If we dissect NSE Midcap index, 40 percent of the companies are ahead of price CAGR. This is the kind of froth which has gotten created in a large chunk of midcap space, he said.
Hence, for investors, the best practice would be to look at bottom-up stories. They should invest in stocks where they are sure that there is a possibility of earnings growth and expectation of Vs earnings growth are realistic in terms of current multiple which the stock is trading at.
Essentially, it’s a mix of backing the conviction that we have into certain companies and maybe doing some migration towards largecaps. “The price CAGR and the earnings CAGR are broadly the same at 12 percent or so over the past 5 years. There is not much of froth which got build up in this space over the last 5 years,” he said.
A lot of midcaps have rallied in the past couple of days but everything stock cannot be put under the same umbrella. A lot of midcaps saw good earnings growth and accelerated price momentum which has pushed massive liquidity into those stocks which have performed well.
Some of the pockets in consumer discretionary, staples are trading ahead of their mean valuations. The entire staple space is trading at 40x forward which is close to 35 percent premium of what the mean valuations have been.
“These are some space which we feel that investors should be cautious before committing fresh capital. The pocket of comfort where investors can deploy their money is operating leverage stories,” said Pujara.
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