Mid-caps Back on the Radar as Market Regains Swagger

No bull phase yet, but investors can look at quality mid-cap stocks, say experts

With the market getting its rhythm back over the past few weeks, and especially its swagger on Thursday, after the US Federal Reserve’s decision to maintain status-quo on bond-buying, retail investors have been left wondering if the next bull run has already begun. 

Their natural inclination will be to seek out mid-cap scrips, which typically outperform in an uptick. But they need to be choosy as well in such times. The ET Intelligence Group has figured out that a few such scrips have apparently suffered mainly due to market volatilities, in spite of posting healthy performance, and hence are more likely to bounce early in a recovery. “Sentiment has certainly improved, and mid-caps are certainly attractively valued at present, and now could be a good time to invest in them,” said Gautam Trivedi, MD and Head of Equities with Religare Capital Markets. But he isn’t sticking his neck out yet to say that a new bull phase has begun.
“It’s safer to invest in midcaps only with long-term horizon,” said G Chokkalingam, managing director and chief investment officer with Centrum Wealth Management. “Investing in only the best quality mid-caps is necessary since a number of concerns still exist,” he added.
Chokkalingam said, “The tax collection of top 100 companies for Q2 was up just 8% year-on-year against a 15% growth in the previous quarter. The earnings season starting October will be lacklustre. Similarly, the fiscal deficit for the first six months could reach the full year’s estimated figure in view of slowed-down tax income. Then there will be elections in May 2014. The next few months will be full of uncertainties.”
Religare’s Trivedi also takes a cautious view. “While the Federal Reserve’s decision is welcome from the liquidity point of view, it is an external event, which won’t repair domestic economic problems. Industrial recovery is slow and domestic economy is not doing very great.” ETIG has put together a list of mid-caps, keeping in mind such pitfalls. The companies chosen are currently trading at lower valuations in the past 18 months despite posting healthy profits and improved balance sheet — a clear case of market punishing the good with the bad.