Credit Suisse bets on midcap stocks with large valuation gap

Moneycontrol Bureau

Betting big on midcaps, Credit Suisse says large valuation gap between segment leader and a smaller company sometimes provides an opportunity for higher stock returns by smaller company.

Explaining the phenomenon, Credit Suisse says that segment leaders traditionally trade at a premium due to multiple factors such as superior historical track record, better financial metrics, relatively more robust corporate governance frameworks and higher market cap and liquidity. However, it points out, valuation gap closes due to consistency and superior performance by smaller players.

"Large valuation gap between segment leader and small player sometimes provide an opportunity for higher stock returns to be generated by the smaller company," it adds.Stocks where there is a valuation between largest player and smaller players: AC: Voltas trading at 240 percent premium to Lloyd on current 1 year forward PE Appliances: Havells trading at 112 percent premium to Bajaj Electricals on current 1 year forward PEFMCG: Marico is trading at 97 percent premium to Bajaj Corp on current 1 year forward PERating Agency: Crisil trading at 88 percent premium to Care on current 1 year forward PEApparel: Aditya Birla Fashion trading at 86 percent premium to Arvind on current 1 year forward PE.