Midcaps have outperformed benchmark indices in April. Despite the volatility, the Nifty Midcap index has ended the month in the green, rising 0.6 percent for the month as against a 2 percent fall in the Nifty. The increase in volatility was led by weak global cues, with concerns around inflation and potential rate hikes sparking a risk-off globally, leading to elevated FII outflows.
The rise in the midcaps comes after the recent correction due to the worsening geopolitical tensions between Russia and Ukraine and the resulting inflationary concerns which provided a good opportunity for investors to accumulate good quality midcap and smallcap stocks at cheaper valuations.
In the Nifty Midcap 100 index, 10 stocks gave double-digit returns during the month. The best midcap performers in April 2022 were Varun Beverages (+15 percent), M&M Financial Services (+15 percent), Indiamart (+14 percent), and Bharat Electronics (+13 percent).
Aditya Birla Capital, MRF, Coromandal International, AU Small Finance Bank and Emami also rose over 10 percent in April. However, L&T Tech, Mphasis, Zee, NALCO, Tata Communications, Alkem Labs, ICICI Securities, and Persistent Systems lost between 10 percent and 20 percent during the month.
Despite challenging global cues, Axis Securities remains positive on the Varun Beverage's performance in the coming months owing to peak summer season demand, and operating leverage coming into play due to volume offtake in CY22E/CY23E. Other key growth drivers are strong execution in under-serviced territories, market share gains, debt reduction and healthy cash flow generation, and expansion in new international geographies, it added.
Meanwhile, Nirmal Bang said the M&M Financial has invested in technology and data analytics, and is leveraging on Mahindra group’s ecosystem and cross-sell opportunities to drive AUM growth. It has done multiple hiring at top levels to meet gaps or expand business, added the brokerage. It maintains Accumulate rating on stock and said that upside risks include faster AUM growth and improved asset quality.
However, it is important to note that while midcaps may offer higher returns, it also comes with a higher risk as compared to largecap stocks. Only investors with a high-risk appetite should consider investing heavily in midcap stocks while those with a conservative risk appetite should prefer to stay away.
Going ahead experts believe that the volatility is here to stay in the short run given the after-effects of the Russia Ukraine war, hence the trend will likely remain negative from hereon.
While the midcaps have outperformed, brokerage house IDBI Capital still prefers betting on largecap stocks in the current environment. According to the brokerage, while it is a good time to accumulate quality midcap stocks, however, any major volatility in markets can lead to a steep fall in midcaps.
Analysts suggest largecap stocks for risk-averse investors. However, investors with a higher risk appetite can 'buy on dips' quality midcaps with robust fundamentals. One must contact their financial advisor before taking buying or selling any stock.
Axis Securities believes that midcap stocks provide attractive investment opportunities in the broader market at current levels. It added that the long-term story for the equity market remains intact.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.