The midcap index has outperformed the benchmark in the last 1 month, however, despite the outperformance, experts prefer large-caps over midcaps in the current market environment.
In the past 1 month, the Nifty Midcap index has risen 7 percent as against a 4.5 percent rise in Nifty. Just in July, the midcap index has surged 9 percent versus a 5 percent rise in benchmarks. However, in all months this year (January to June) individually, except July, the midcap index has underperformed the Nifty.
In May and June, the midcap index fell 5.3 and 6.4 percent respectively as against a 3 and 5 percent decline in Nifty50 in the respective months.
In the last 1 year as well, the midcap index has added 2.6 percent versus a 5.7 percent gain in Nifty.
The outperformance in the last 1 month was triggered mainly by better performance of midcap constituents as investors lapped up midcap stocks after the recent correction at cheaper valuations. Also the recovery in market sentiment added to the gains.
However, brokerage house Motilal Oswal (MOSL) said that it finds more value in large-caps than mid-caps given the relative valuation equation.
In the Nifty Midcap 100 index, only 8 stocks gave negative returns in the last 1 month while the remaining were in the year. Adani Total Gas and Dalmia Bharat rose the most, over 20 percent each in the past 1 month. While the Adani stock has surged 70 percent in the 2022 YTD, the cement stock has fallen 15 percent in this time.
According to Nishit Master of Axis Securities, the relatively better quarterly numbers from mid-caps vs the disappointment from key large-cap names like RIL, TCS, Infosys, etc have translated into better performance of mid-caps vs large-caps.
For example, Oberoi Realty reported a 400 percent rise in its consolidated net profit at ₹403.08 crore in Q1FY23as against a net profit of ₹80.63 crore in Q1 FY22. Its revenue from operations also surged 221.2 percent YoY to ₹913.11 crore during the quarter. Edelweiss Securities noted that the recovery in housing demand is a key positive for Oberoi Realty. The launch of new projects and business development are the key stock catalysts in their view.
Meanwhile, Polycab also reported a 201.85 percent rise in net profit to ₹222.5 crore in Q1 against ₹73.71 crore profit in the year-ago quarter. Revenue from operations of the company during the quarter under review rose 47.5 percent to ₹2,736.6 crore compared to ₹1,855.2 crore in the corresponding quarter of the previous fiscal.
However, largecaps like RIL, TCs, Infosys have disappointed investors, missing estimatesin the June quarter earnings.
"Investors should have a mix of large-cap and mid-cap stocks in their portfolio to manage growth and risk together, but more importantly, an investor should pick stocks after doing a thorough analysis of the company’s financials and its industry standing and then pick quality stocks that are available at reasonable valuations irrespective of their market cap," Master advised.
However, Edelweiss believes that smallcap and midcap stocks (SMID) underperformance is yet to play out fully. Its top stock picks in this space are Whirlpool, PVR, Blue Dart, Varun Beverages, PI Industries, Trent and Teamlease.
Analysts at Anand Rathi also cautioned that Mid-small cap stocks provide greater outperformance than large caps while large caps provide steady and stable returns.
It is important to note that while mid and small companies offer a higher earnings growth trajectory compared and hence can create significantly more wealth, one needs to be cognizant of their risk appetite as the ride is much longer and more volatile than large companies which have the benefit of investor confidence for a long period of time.
Most analysts suggest a disciplined approach to investing in good quality companies during a tough macro environment.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.