1. Despite fall, mid caps maintain YTD edge

Despite fall, mid caps maintain YTD edge

Mid-cap stocks saw heavy selling pressure in Tuesday’s market correction...

By: | Mumbai | Updated: December 17, 2014 3:59 AM

Mid-cap stocks saw heavy selling pressure in Tuesday’s market correction as the category index lost more value than its bluechip counterpart.
As concerns over falling crude prices and the impending Federal Reserve policy weighed on global sentiment, the BSE mid-cap index lost 3%, or 297.89 points, to end the session at 9,764.7. The benchmark Sensex that plunged 583 points intraday closed at 26,781.44, down 538.12 points, or 2%.

Nearly 70% of the BSE mid-cap universe lost close to 2% and nearly a fifth of the constituents declined over 5% in Tuesday’s trade. The decline was led by financial and infrastructure & construction names, including HDIL, Srei Infra, IOB, Karnataka Bank, Reliance Capital, Unitech and PMC Fincorp, which fell anywhere between 7- 18.7%.

Despite this retreat, the mid-cap index has fared better than the 30-share index as the latter has come off its record high since November 28, 2014. In the last 12 sessions, while the Sensex has lost 7% of its value, the BSE mid-cap index has traced back 5% of its gains. Like for most part of the year, the mid-cap index has maintained its year-to-date out-performance with respect to the Sensex with gains of 46%, almost two times the gains clocked in by the former (26%).

graph-ytd

Not surprisingly, the mid-cap barometer has still maintained its valuation premium to the Sensex as it trades at a relative P/E of 1.06 times to that of Sensex. This performance appears to reflect the underlying confidence in equity markets given that mid caps generally do well when prospects of economic growth appear strong.

In a recent note, Macquarie Capital argued that lower crude prices and an easing rate cycle could support a cyclical rally as also mid-cap performance. Drawing on historical data, the brokerage said that mid and small caps outperformed large caps in the previous bull runs that peaked in 2008 and 2010. Even during the previous rate easing cycles, after repo rates were reduced between 2001-2003 and 2008-2009, the CNX mid-cap index reported superior relative performance to the 50-share Nifty.

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