As good as it gets

Mid-cap stocks are likely to continue their winning streak but the risk-reward in some sectors are no longer favourable


In CY17, small triumphed over big. While, only one stock doubled in Nifty 50, as many as 12 stocks doubled in Nifty Free Float Midcap 100 index. The one stock that doubled in Nifty 50 was that of Bajaj Finance, whose market cap doubled to Rs.101,277 crore. Of the 12 stocks that doubled in the Nifty Free Float Midcap 100 index, Indiabulls Real Estate, Vakrangee and Jindal Steel & Power were the biggest gainers. Over the past one year, while Nifty 50 gained 29%, the Nifty Free Float Midcap 100 index outperformed it by a mile by gaining 47%. 

What’s pertinent to note that depth of outperformance is much more wider in the mid-cap space, much beyond the benchmark 100 stocks. Outlook Business ran a filter of 370 mid-cap stocks with a market cap in the range of Rs.3,000 crore to Rs.26,000 crore and the results were: 72 stocks have more than doubled, while 91 stocks just about doubled. On a sectoral basis, four sectors saw the maximum outperformance. 17 stocks in the financial services sector have doubled or more than doubled; 10 stocks in the chemicals (agro chemicals and fertiliser) sector have doubled or nearly doubled, while seven stocks in the realty and six stocks in the auto ancillaries space have nearly doubled. According to Sanjay Mookim, India equity strategist, Bank of America Merrill Lynch, the falling cost of capital, large surge of domestic liquidity, coupled with improved earnings in these sectors has resulted in re-rating of these sectors. “Auto ancillaries, NBFCs and chemicals [largely agrochem and fertilisers] have delivered on the growth front and will continue to do so, going forward. While retail credit has driven growth for NBFCs, a good monsoon has fuelled demand for agrochemicals and fertilisers.”

NBFCS: Gaining ground?
Even as the phantom of bad loans continues to haunt public and private sector banks, NBFCs occupied the centre stage in CY17. Increased rural demand owing to higher minimum support price, greater thrust of the government on infrastructure development (10% increase in the FY18 budget) and affordable housing have propelled demand for rural credit. Wider diversification in product offerings by NBFCs has also piqued the interest of investors in the secto


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