Expectation of robust monsoon, lower commodity prices, stable government, lower fixed income yields are prompting and activating domestic investors to allocate more capital to equities on the whole.
The month of July was a golden month for midcap indices on Dalal Street as they touched their record high. For investors, Sachin Shah, fund manager and head at Emkay PMS tells Financial Express online that investing in midcap space is a bottom-up approach. He further added that we can see a company-specific performance in the midcap space going forward. Below are excerpts from the interview:
Q) What are the factors supporting midcap stocks as BSE Midcap index has recently hit its all-time high?
A. Expectation of robust monsoon, lower commodity prices, stable government, lower fixed income yields are prompting and activating domestic investors to allocate more capital to equities on the whole. In particular with midcaps, domestic investors historically have always had a penchant towards the space in lure of higher returns. In the past, domestic retail investors used to top-heavy their portfolios with midcaps when doing direct equity. This time around instead of direct equity (due to not so good past experiences) the retail investors are allocating money to midcap funds. This creates a short-term demand-supply imbalance as daily liquidity in the midcap stocks is not very high but the money received by midcap funds have to invested immediately leading to a push-up the prices in short-term.
Q. How do you see midcap space from here onwards?
A. Investing in midcap space is a bottom-up approach. Therefore to generalise the outlook on the entire midcap space at this point is very difficult, particularly since we have not yet seen a full-fledged recovery in the economy. We can see company-specific performance in the midcap space going forward.
Q. Which midcap stocks are looking good in the present market conditions?
A. In the last few quarters we have allocated money in L&T Finance, LIC Housing Finance, Sundram Fasteners, Bajaj Corp and Mahindra Holidays.
Q. How do you see valuations of benchmark indices after the recent bull-run? Where do you see Sensex and Nifty by March 2017?
A. The valuations have to be looked in the context of the earnings growth for the next 2-3 years, keeping a reasonable growth estimate of 12-15 per cent for next 18 months, the markets currently could be trading near the higher-band of its valuation range. In the long run (over 3-5 years), markets tend to gravitate towards corporate earnings growth.
Q. Suggest some large cap stocks which are looking lucrative?
A. Among the large-caps in the last few quarters, we have invested in Mahindra & Mahindra, Hero Motocorp in the auto space; Power Grid in power utilities and ICICI Bank and HDFC Bank in the financial services sector.