While Nifty 50 may have hit new record highs this month and even breached the 13,000 level on Tuesday. While gains in NSE's large-cap index is making headlines, midcaps are quietly recovering ground, outperforming large-caps.
Between last week and now, Nifty Midcap index has gained 7% when compared to Nifty's 2.3% increase.
If we were to compare YTD (year-to-date i.e from 1 January of a year) performance, Nifty Midcap has risen up 13% against Nifty's 7% gains.
Midcap stocks are cheaper and could be wealth creators
While all is not clear in terms of economic uncertainties for mid and small caps, vaccine development has raised hopes for recovery. Moreover, large-cap valuations are now clearly expensive, leaving little room for gains, causing investors to look beyond them.
Armed with 3 soon-to-be approved vaccines, investors are now more confident of a V-shaped recovery in consumer demand and production but the approach has sector and stock specific.
Navin Fluorine, Escorts and Adani Gas, all constituents of Nifty Midcap 100 index, have doubled investor wealth in 2020. A 50 to 90% gain has also been seen in Jubilant Food, Mindtree, Vodafone Idea, Natco Pharma, Dr Reddy's, Coromandel International, among other strong midcap names.
Investors see value in these midcap stocks that hold the potential to become large caps in a few years.
However, sectors most affected by the pandemic like airlines, hotels and multiplex operators are likely to take longer to recover.
More upside expected
In a recent report on the Indian markets, Morgan Stanley said that it sees small and mid-caps beating the large caps in 2021.
While projecting Sensex to hit 50,000 levels next year, the brokerage said that it sees the broad market SMIDs (small and mid-caps) beating the large caps adding that portfolio returns are more likely to be driven by bottom-up stock picking rather than top-down macro forces.
Among sectors, it expects domestic cyclical to outperform exports, with rate-sensitive stocks and consumers outperforming whereas energy underperforming.
Where to invest?
Motilal Oswal recently listed its top midcap stock picks being AU Finance, IEX, IPCA, Motherson Sumi, ICICI Securities, Crompton Consumer, ABFRL, Mphasis, Emami, and LIC Housing Finance.
It also said that it is 'overweight' on IT, BFSI, Healthcare, Telecom and Auto, and maintains a 'neutral' call on Consumer in its model portfolio.
In a report by ICICI Direct on stocks bought and sold by mutual funds in October, it said that among midcaps, Sumitomo Chemical, L&T Finance, Coforge, Vodafone Idea, and CreditAcess Grameen witnessed the highest buying.
Other top buys made by mutual funds included Oracle Financial Services, Polycab India, Dalmia Bharat, L&T Tech, and GMR Infra.
On the other hand, highest selling was seen in Canara Bank, JSW Energy, BHEL, Shriram Transport, IRCTC, Glenmark Pharma, Tata Chemicals, Mindtree, GSK Pharma, and ACC, it said.
SBI Mutual Fund, the country's largest asset management firm, chose to lower its holding in at least 40 Nifty companies in October, including Bharat Heavy Electricals, Indian Oil, ITC, ICICI Bank, SBI, HDFC Bank, Infosys, Adani Ports, Axis Bank, ONGC, NTPC, L&T, Hindalco and RIL, an Economic Times report recently said.
On the other hand, it raised holdings in midcaps and small-caps such as NHPC, City Union Bank, SJVN, Kalpataru Power, Engineers India, GE T&D India, ABB, DLF, Star Cement, Avenue Supermarts, Phoenix Mills, Narayana Hrudayalaya, CAMS and CSB Bank.
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