CNX Mid-cap index hits all-time high

In intra-day trade, the index hit a high of 12,229.25; BSE Mid-cap Index is just 53 points away from its record high

Mid-cap stocks gained ground in trade on Wednesday, with the CNX Mid-cap Index hitting an all-time high of 12,229.25 in intra-day deals before settling at 12,167 levels. On the BSE, the S&P BSE Mid-cap Index, too, made a fresh 52-week high of 10,193.37 in intra-day deals before ending the day at 10,133 levels. However, the S&P BSE Mid-cap Index is still 53 points away from its record high of 10,246 touched on January 8, 2008 during intra-day trade.

The CNX Mid-cap Index, which comprises 100 stocks and represents 17 per cent of the total market capitalisation of the listed stocks, has gained 51 per cent thus far in calendar year (CY) 2014 compared to CNX Nifty’s 33 per cent rise.

“Mid-caps, as an asset class, generally tends to do well when the domestic economy gathers traction. The companies that comprise the CNX Mid-cap index have a larger exposure to the domestic economy versus the CNX Nifty companies where a number of companies over the last few years have diversified into international markets. So when the economy recovers, the benefit to mid-sized companies is higher than what it is for the large-cap ones. This is what is getting reflected in the markets,” explains Taher Badshah, senior vice-president and fund manager at Motilal Oswal AMC.

Winners and losers
Of the 100 stocks that comprise the CNX Mid-cap index, 16 have become multi-baggers and have surged over 100 per cent, while 30 stocks have gained between 50 per cent and 100 per cent so far in CY14. However, nearly half or 52 stocks have underperformed the CNX mid-cap index, by recording less than 51 per cent gain.

Among individual stocks, Aurobindo Pharma, Apollo Tyres, Ashok Leyland, Eicher Motors, Max India, MRF and Thermax from CNX Mid-cap are trading at their respective record highs.

On the other hand, Bhushan Steel, GMR Infrastructure, Sun TV Network, United Breweries, MphasiS, Ipca Laboratories, KPIT Technologies and L&T Finance Holdings are among those that have recorded negative returns during this period.

Outlook
Given the rally seen thus far in 2014, analysts maintain a cautious view on this segment. While they don’t rule out more headroom for stocks in this segment, they advise being selective at the current levels.

“Small–and mid–cap stocks have continued to rally sharply after the elections on hopes that the growth recovery will accelerate. We believe this has led to many stocks running significantly ahead of fundamentals. Valuations as an asset class relative to the large-caps are now near historical highs. Over the past few months, we have downgraded stocks as we found the risk-reward unappealing at their valuations, despite liking the business models and growth outlook,” point out Gautam Chhaochharia and Sanjena Dadawala of UBS in a recent report.

Their top picks in this segment include Multi Commodity Exchange of India (MCX), Voltas, Exide Industries, LIC Housing Finance, Britannia Industries and Bajaj Electricals. Jubilant FoodWorks is their least preferred stock in this segment.

Badshah of Motial Oswal AMC, however, believes that since the economic recovery phase is just about starting and will probably get stronger in the next financial year, many of these mid-sized companies will tend to grow at a much faster pace. Mid-caps, as an asset class, will see better traction going ahead, he says.