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Midcaps may not outperform large caps: ICICI Securities

Recent run-up has upset usual mid-cap/large cap valuation gap, leaving little room for upside

BS Reporter Mumbai
Shares of mid-sized (or mid-cap) companies may not outperform larger ones on account of the higher valuations they now enjoy after recent market action, according to an ICICI Securities India Update report dated September 24.

Mid-cap companies are usually cheaper than large-cap ones, noted the report.

"Given their risk profile, mid-caps usually trade at discount valuation to large caps. However, their outperformance, in recent times, has completely eroded the valuation premium of large caps. Over the next 12 months, we do not expect mid-caps to outperform large caps," it said.

The brokerage noted that larger companies, such as the fifty that make up the benchmark Nifty index, are likely to become more expensive. More retail investors looking to get back into the stock market as well as sustained foreign inflows is likely to result in increased valuations, it said. Additional fund-raising by companies may absorb some of the flows and limit upsides, according to the report.

 

The company has put a target of 9200 for the Nifty over the next twelve months. The target is based on estimated earnings for the financial year ending in March 2016, and implies a price which is 16 times the earnings. The index has traded at 15.4 times the earnings according to long term averages, said the report.

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First Published: Sep 27 2014 | 3:26 PM IST

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