Boosting midcaps

Midcap

A bold investor was the one who could venture to buy midcaps in the past.  We have observed that midcaps have had a hit due to either of the following:

  1. Battered by earnings misses
  2. Bruised by relentless de-ratings or
  3. Governance lapses

These scripts had seen their peak level in January last year.

  1. One year later, with the improved economy these stocks are now back in favour due to cheap valuations.
  2. Last year, people went behind quality of scripts, which made the midcaps face a nosedive and trailed against the large caps resulting in an underperformance to the tune of 23% relative to Nifty since January 2018.
  3. Market capitilization of Nifty Midcap 100 index also dropped below the December 2014 level.
  4. The result is that midcapse have now become cheaper and valuation difference between Nifty Midcap 100 and Nifty 50 has now seen a discount for the first time since 2014.
  5. Nifty Midcap 100 is trading at an 8% discousnt to Nifty 50
  6. At a ratio of 15:85 the price-earnings ratio is lower than the 10 year average.
  7. The earnings growth of Nifty Midcap 100 index is expected to be 23% in 2020 when compared with 16% growth in the Nifty 50 a Bloomberg data reveals.
  8. Motilal Oswal research data says that the spread between largecap and midcap one year trailing returns peaks out at 15 to 20%. Currently, this spread is at 18%.

Expectations:

  1. A positive reversal of trade in favour of midcaps is foreseen.
  2. The peak-to-bottom correction of midcaps and Nifty also shows that the odds favour the midcaps.
  3. Average difference in the peak-to-bottom correction between Midcap 100 and Nifty in the past 15 years is around 12%. Now it stands at 23%.

Author: Admin Bankedge

No Comments

Post a Reply