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:
- Battered by earnings misses
- Bruised by relentless de-ratings or
- Governance lapses
These scripts had seen their peak level in January last year.
- One year later, with the improved economy these stocks are now back in favour due to cheap valuations.
- 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.
- Market capitilization of Nifty Midcap 100 index also dropped below the December 2014 level.
- 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.
- Nifty Midcap 100 is trading at an 8% discousnt to Nifty 50
- At a ratio of 15:85 the price-earnings ratio is lower than the 10 year average.
- 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.
- 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%.
- A positive reversal of trade in favour of midcaps is foreseen.
- The peak-to-bottom correction of midcaps and Nifty also shows that the odds favour the midcaps.
- 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%.