With the market moving in a narrow range, action once again seems to be shifting towards the mid-cap space. Investors are increasingly taking a stock-specific approach and raising their risk quotient to bet on smaller companies that have a greater growth potential in a buoyant economy.
And judging by the numbers, they seem to be on the right track. The returns for the 30-share BSE Sensex, 50-share S&P CNX Nifty and BSE 100, all comprising large-cap stocks, have fetched returns in single digits compared with the double digit returns for mid-cap indices CNX MIDCAP and BSE?s MIDCAP. In fact, CNX MIDCAP has gained more than three times that of S&P CNX Nifty.
While institutional interest was mostly concentrated in large-caps during the early part of the year, they have now turned their attention to mid-caps. ?Institutional investors are not taking fresh positions in large-caps. They are buying largely mid-cap and small-cap stocks, where valuations are still attractive,? said Alex Mathews, head ? research, Geojit BNP Paribas Financial Services. Added P Phani Sekhar, fund manager ? PMS, Angel Broking: ?From a near term (3 month) perspective and at a PE multiple of about 18.5, there is very little upside left for large-caps.? Nifty is currently trading at PE multiple of 19 compared with 17 for CNX MIDCAP.
According to Sanjeev Patni, head of institutional equities at Prabhudas Lilladher, mid-caps have a better growth potential in an upbeat economic set up. Moreover, Nifty traders have turned to mid- and small-caps because of the Nifty?s range-bound movement, say experts.
Analysts say profitability numbers for about 50% of the Nifty companies have been dismal despite robust sales growth. Mid-caps, on the other hand, have put up a better show. Several have doubled and even tripled their profits this quarter compared with the same period last year. For instance, low-cost carrier SpiceJet has more than doubled its profits, while the net profit for real estate player Puravankara Projects has nearly tripled on a year-on-year basis. Other prominent mid-caps that have done well in the first quarter include Oriental Bank of Commerce, Union Bank of India and Central Bank of India, Godrej Industries and Power Finance Corporation.
In the mid-cap space, sectors such as banking & finance, auto & auto ancillary, engineering & construction have outperformed expections, say analysts. Mathews believes that valuations of many mid-cap scrips in sectors like banking, realty, shipping & construction and cement is still attractive.