Mid-cap counters may still scale new peaks

The CNX Midcap index scaled to a new 52-week high as select stocks witnessed renewed buying interest after a sharp correction in the past few days.

While marketmen are slightly skeptical about further rally in the CNX Midcap index, sector and stock-specific activity will drive stocks to new highs, they said.

The CNX Midcap index was one of the big gainers in Tuesday's trading to close at a new high of 3487.30, up 1.71 per cent.

"The days of the Midcap mania, where the gains were across the board, is over for now. But one has to be selective in picking up mid-cap stocks. The average price-earnings multiple of the midcap stocks are at 13.5 per cent. Thus there is potential for growth of midcap stocks on selective basis," Sachin Abhyankar of Motilal Oswal Securities told Business Standard on Tuesday.

"However, there are a lot of companies which are catching up with frontline stocks on gains front, as most of the midcap stocks are service providers to them. An example of this can be found in power cable and accessory companies growing along with the power sector majors," Abhyankar added.

Endorsing similar views, Divyesh Shah, head of research with Indiabulls Financial Services, said, "Select midcap stocks will do well, and outperform the broader market even from current levels. Everyday new counters are getting discovered, having strong fundamentals and which are undervalued at current levels."

Sharmila Joshi of Asit C Mehta Investment Intermediates, cites a different reason for the segment being in the limelight for some more time.

"Once foreign institutional investors have taken positions in the frontline stocks, mutual funds and domestic investors are mostly left with midcap stocks. And there are stocks of companies with dynamic managements having the potential for scalability and offering growth prospects."

Abhyankar cautions that investors should keep an eye on the corporate governance issues of companies they want to invest in, besides keeping tabs on their performance. It may be recalled that the midcap stocks were shunned by investors for several years due to non-adherence to corporate governance issues by many managements.

He says that his company has selected pesticide, engineering and welding companies as potential sectors under macro fundamentals approach, while companies such as Sanvi Movers, Sarala Poly, Helios and Tricon were identified as potential stocks under bottoms-up approach.

Joshi's company has identified Dolphin Offshore and Jindal group company Maharashtra Seamless as the potential spikes in future in the midcap segment in the near future.

A head of research with a domestic broking firm, who wished not to be quoted said, "Investors investing in the midcap stocks will have to live with days of volatile trading. But that is the segment which is expected to give multi-baggers if one stays invested for a medium to long term. There are still select midcap stocks which have the potential to be large cap players down the line and will give multiple returns over a period of time."