Are Mid-Cap Stocks Losing Steam?

The NSE’s Nifty Midcap 50 index fell more than a percent to a one-month low on Friday after rising 23 percent so far this year.

The benchmark recorded its best performance this year since 2014 when it rose more than 40 percent for the full year buoyed by improving local macroeconomic conditions and the government’s reform initiatives. Increased participation from domestic investors looking to park excess cash post demonetisation also pushed equity benchmarks higher.

Chart Check

There seems to be a lot of froth at the current juncture, said Hadrien Mendonca, technical analyst at broking firm IIFL. He said the index showed signs of uncertainty in the previous week as well and expects downtrend to persist for a bit longer.

Also Read: Nifty Fails To Hold 9,600 As Automakers Lead Decline

Mid Caps Now An Avoid?

Vikram Suryavanshi, vice president (equities) at Philip Capital analyst thinks so. The mid-cap index is currently trading at a price to earnings ratio of 48.24 times, compared to its five-year average of 29.21.

“Mid-caps have been running up on hopes of earnings recovery. The recovery may be pushed down to third or fourth quarter courtesy the GST rollout,” he told BloombergQuint over the phone.

While he remains bullish, Suryavanshi said mid-cap stocks may enter a period where they either continue to be rangebound or correct on the downside. “For the long-term, I still see value in them,” he said.

Suryavanshi is bullish on the logistics, textile and agri-related stocks.

For Avinash Gorakshakar, head of research at Joindre Capital Services it is time to shift focus to largecaps citing the valuation gap between the two.

“There are hardly any midcaps, which are highly attractive right now. The outperform will continue but in a very select few,” he said.

Similarly, Ajit Mishra, vice president (retail research), Religare Securities said investors should avoid midcaps in the short-term. He said the bias in the market remains downward and any correction, if and when it happens, will be more severe in the midcap stocks.