The midcap party seems to be ending

Profit booking, spate of bulk deals mark counters in August

Is the mid-cap party over? Large funds, including domestic as well as select foreign institutional investors, have already started offloading their holdings in various small mid-cap companies since the middle of August.

Market analysts said mid-cap stocks which had seen a smart rally over the past few months are now showing signs of fatigue and may witness selling pressure once the proposed 10 per cent short-term capital gains tax is expected to take effect.

The Budget proposals are yet to be ratified by the Parliament and if the finance bill in passed in the current session, the proposal could come into effect from September 1. Currently, short-term capital gains are taxed at 30 per cent rate.

Market sources said that bulk investors have already started selling their mid-cap shares expecting a wave of selling to take place. Most of the sales have been done in bulk deals.

The data on bulk deals available from the Bombay Stock Exchange (BSE) reveals that in many mid-cap counters such as Strides Arcolab, Voltas, KJMC Financial Services, Sri Ramakrishna Mills, Oriental Carbon, Mangalam Cement, Sterling Biotech, D-Link and others, the UTI-1 and foreign funds such as Kuwait Investment Ltd, General Motors Employees Group Pension Trust, ICICI Ventures and Morgan Stanley and Co Int have offload their holdings through bulk deals after August 12.

On August 20, 2004, Kuwait Investment Ltd sold 3,52,000 shares of Voltas at Rs 129.50 per share. Similarly, a scheme managed by UTI-1 sold 14,725 shares of KJMC Financial Services at Rs 4.25, while General Motors Employees Group Pension Trust sold 21,800 shares of Sri Ramakrishna Mills at Rs 11.30 per share.

The head of research with a domestic broking firm said on conditions of anonymity, "The selling pressure in mid-cap stocks may get intensified with operators and funds booking profits when the proposed short-term capital gains tax of 10 per cent is introduced. However, select mid-cap stocks with strong fundamentals and good growth prospects will continue to attract fresh investments as the broader market is expected to remain range bound. This is a classic year of specific-stock buying and there are a few mid-cap stocks which will outperform the broader markets."

Ambreesh Baliga, vice-president, Karvy Stock Broking, said, "Investors who are holding back their holdings may press some profit booking once the short-term capital gains tax of 10 per cent is introduced."

On August 19, the US-64, managed by UTI-1 sold 49,900 shares of Oriental Carbon at Rs 8.99, while ICICI Ventures sold 54,595 shares of Hydro S&S at Rs 18.80.

On the previous day, another scheme managed by UTI-1 sold 50,000 shares of KJMC Financial Services at Rs 4.25 and 1,00,000 shares of Mangalam Cement at Rs 47.50. Morgan Stanley and Deutsche International TR were sellers in the Sterling Biotec counter last week.

While Morgan Stanley sold 11 lakh shares of Sterling Biotec at Rs 127.50, Deutsche International sold 2,41,577 lakh shares at Rs 108.91.