Mid-caps on comeback trail

Category looks attractively valued, feel fund managers.

After underperforming for the last few months, mid-cap stocks may be on a comeback now. Thanks to the recent fall, many mid-cap stocks look attractive and may bounce back, fund managers said.

One evidence of the rising confidence in mid-caps came from Franklin Templeton's decision to open sales window for its mid-cap fund Prima.

The fund, which had stopped fresh sales in the fund earlier this year, announced on Wednesday last that it would reopen its sales window from June 19.

"Given the recent declines in mid- and small-cap stocks and the consequent fall in valuations to relatively attractive levels, our investment team is confident of deploying fresh inflows in good long-term opportunities," said Vivek Kudva, president, Franklin Templeton Investments.

"A vast majority of funds lagged behind the index last month because of higher allocation to mid-caps. After the recent fall, select mid-caps are looking very attractive," said A K Sridhar, chief investment officer, UTI Mutual Fund.

Sridhar said he has a list of five dozen investment ideas which are looking attractive at current levels. There are quite a few mid-caps in these, he said.

"Ignoring any possible negatives on monsoons and redemption pressure, the markets are looking very cheap.

Mid-caps have seen a steep decline during the recent fall and many stocks look attractively valued," said S Naren, co-head "� equities, Prudential ICICI Asset Management. However, the sudden drying of liquidity makes investing in mid-caps still somewhat risky, despite attractive valuations.

"The impact cost in the market has gone up sharply which makes buying and selling large quantities quite difficult," Naren said.

Since the markets hit their all-time highs last month, mid-cap stocks have fallen far more than large-caps dragging down the performance of mutual funds which have been overweight on this category relative to the key indices.

While the Nifty and Sensex lost around 29 per cent, the CNX Mid-cap lost around 35 per cent between May 10-June 14.

Thus, more than 80 per cent of equity diversified funds lagged behind the Sensex and Nifty. Out of 252 equity fund schemes, 212 lagged behind the Sensex and 188 trailed the Nifty.

The steep decline in mid-cap prices has brought down the valuation of mid-cap with the index currently trading at a price-earnings multiple of around 15 times compared with 26 times on May 10.