Midcaps up 50% in 2 months, Sensex 8%

Mid-caps have emerged as the clear favourite of investors, both institutional as well as retail, if returns in the last two months are any indication.

Large cap stocks have performed moderately while small-cap stocks are clear losers as far as investing preferences go.

The Bombay Stock Exchange (BSE) Mid-Cap index, which was launched on April 11, 2005, and comprises 231 companies representing 15 per cent of BSE's eligible universe, has shot up 47.58 per cent, from 3094.96 on April 11 to 4567.42 on June 15 this year.

However, the BSE Small-Cap index, which comprises 425 companies representing five per cent of BSE's eligible universe, has fallen sharply by 12.85 per cent, from 3889.65 to 3390.01 during this period.

Aided by a resurgence in interest in large-cap stocks in recent trading sessions, the Sensex, which comprises 30 primarily large-cap stocks, has gained a modest 7.96 per cent, from 6397.52 to 6906.98.

Interestingly, the top five stocks by weightage in the Small-Cap index have performed better than the top five weighted stocks in the Mid-Cap index. But it was the remaining stocks in the Small-Cap index which have fared poorly and have brought down the overall performance of the Small-Cap index.

Of late, there have been growing concerns among investors that the Mid-Cap index, which has been defying gravity for some time now, is at relatively more expensive valuations than the Large-Cap index.

For example, the CNX Mid-Cap index of the National Stock Exchange (NSE), trades at over 18 times trailing year earnings while the Sensex trades at just over 15 times (price earnings).

This overvaluation of the Mid-Cap index raises the risk of the mid-cap stocks falling more sharply than large-cap stocks should a deep correction take place in the markets.

In such a situation, the mid-cap story remains a bottom up one and risk averse investors are increasingly shifting their focus to large-cap stocks of late.

Indian Rayon with a weight of 1.74 per cent in the BSE Mid-Cap index, is the highest weighted stock in the index and has gained 4.75 per cent, from Rs 423.30 to Rs 443.40 during the period under consideration.

The biggest gainer in the Mid-Cap index, among the top five by weight, is Arvind Mills, which has the fifth highest weightage of 1.36 per cent. The stock has zoomed up 20.55 per cent, from Rs 114.85 to Rs 138.45.

The second biggest gainer in the Mid-Cap index is United Phosphorous, which has the third highest weight in the index of 1.50 per cent. It has gained 14.85 per cent from Rs 720.55 to Rs 827.55.

The other gainer in the mid-cap space is Indian Hotel, which rose a modest 3.89 per cent from Rs 622.90 to Rs 647.15. The stock is ranked second in terms of weightage in the index with a weight of 1.58 per cent.

Allahabad Bank is the only loser among the top five in the Mid-Cap index, with a weight of 1.37 per cent, falling 4.29 per cent from Rs 92.10 to Rs 88.15.