If you told somebody at the same time last year that select blue chip stocks would crash 40-50 per cent, nobody would have believed you.
So much so that large cap stocks have crashed like mid cap stocks, which is never the case. To see largecap stocks like SBI and ICICI Bank crash almost 40-50 per cent from peak levels, is difficult to believe.
Midcaps on the other hand have had a good couple of years, thanks to steady inflows from mutual funds. Large caps on the other hand have come crashing down, as foreign portfolio investors have sold lock, stocks and barrel in select counters like State Bank, ICICI Bank and Tata Motors.
This makes these stocks reasonably attractive from a long term perspective of at least 2-3 years. Now, the worrisome thing for midcap stocks is that their corporate earnings have been disastrous. Crompton crashed 22 per cent on the day of its results and the stock of Just Dial has halved in the last few months, as results were a major drag. There are several such pockets where midcaps have failed to enthuse like Interglobe Aviation, Dish TV,which have crashed following a poor set of numbers.
One reason that midcaps may fall, is that mutual fund inflows may not sustain in the next 6 months. One is that investors are pretty disappointed with the returns from mutual funds over the last two years. It has not even matched bank returns. This may lead to tapered inflows and the risk of withdrawals from mutual funds increasing.
If that happens, midcap stocks, which have rallied on the basis of sizeable investment by mutual funds, may see a fall. Interestingly, that may now just be happening. In the last couple of days, we are seeing domestic institutions selling and many attribute the same to mutual fund selling.
The price damage in several largecap names may just be over and the carnage in midcaps may continue. At the moment, select large caps offer better value and the possibility of significant price damage from hereon looks remote.