Mid-year market review: Midcap index dips 13%, smallcap down 16%

Additional surveillance mechanism for select stocks put in place by market regulator Securities and Exchange Board of India (Sebi) and concerns regarding rejig in classification of mid-and small-caps have led to stocks from these two segments underperform their large-cap peers in the first half of calendar year 2018 (H1CY18). 

The S&P BSE Midcap and S&P BSE small-cap indices have lost around 13 per cent and 16 per cent respectively in H1CY18, as compared to four per cent rise in the S&P BSE Sensex during this period, ACE Equity data shows.

Indiabulls Ventures, Firstsource Solutions, NIIT Technologies, V-Mart Retail and MindTree gained 61 per cent to 84 per cent and were the top performers among the BSE 500 pack. On the other hand, Vakrangee, Kwality, HCC, HDIL and Manpasand Beverages lost in the range of 65 per cent to 85 per cent in H1CY18, ACE Equity data shows.

For the remaining half of CY18, analysts expect the markets to remain choppy on account of rising oil prices that could stoke inflationary pressures, possible hike in interest rates by the Reserve Bank of India (RBI), corporate earnings, rupee levels, political uncertainty surrounding the assembly elections scheduled for H2CY18 and the general elections scheduled for 2019. 

That apart, trade war fears and interest rate moves by global central banks are some of the key factors that traders will keep a tab on. Sanjay Mookim, India Equity Strategist, Bank of America Merrill Lynch, for instance, maintains December 2018 fair value for the S&P BSE Sensex at 32,000 levels, which is nearly 10 per cent lower from the current levels the index is trading at.

“An improvement in the NIFTY’s breadth would require not just absolute earnings growth, but also earnings beats. These seem unlikely in the near term due to elevated expectations (MSCI India FY19 EPS currently forecast to grow 25% YoY). India is relatively devoid of domestic catalysts now, though uncertainties around elections in 2019 are likely to increase through the year. The latter could particularly hurt mid-caps,” Mookim says.

Adding: “Given our cautious outlook, perhaps it is time for investors to increase focus on top down sector choices. We are currently overweight Discretionary, Financials and Industrials and underweight on Health Care, IT; having recently reduced staples to Neutral weight.”

Ashok Leyland, Aurobindo Pharma, HDFC Bank, Hindustan Unilever, ICICI Bank, Insecticides India, Jubilant Foodworks, KEC International, NBCC, Nestle, Oracle Financial, Petronet LNG, SBI Life, SRF, Sterlite Technologies, Tata Motors and Tata Steel are some of the top buy ideas of Emkay Global across the large- and mid-cap segments.

Sanjeev Prasad, executive director and co-head, Kotak Institutional Equities still feels mid-cap consumer stocks to be quite expensive given their valuation and prefers to avoid them same despite their relatively better longer-term growth prospects. 

Balkrishna Industries, CESC, Escorts, Federal Bank, Kalpataru Power Transmission, Laurus Labs, Max Financial Services, Prestige Estates, Sadbhav Engineering and Shriram City Union Finance are the stocks he recommends in the mid-cap segment.

WINNERS
Company	Price (Rs)	Change (%)
Indiabulls Ventures Ltd.	486.85	83.4
Firstsource Solutions Ltd.	70.40	72.5
NIIT Technologies Ltd.	1096.15	69.6
V-Mart Retail Ltd.	2481.00	66.8
Mindtree Ltd.	986.35	61.7
Jubilant FoodWorks Ltd.	1387.40	57.5
KPIT Technologies Ltd.	271.25	50.4
Larsen & Toubro Infotech Ltd.	1670.80	49.6
Mphasis Ltd.	1085.15	48.8
Zensar Technologies Ltd.	1277.80	43.8
LAGGARDS
Company	Price (Rs)	Change (%)
PTC India Financial Services Ltd.	16.20	-56.5
Jet Airways (India) Ltd.	346.70	-58.3
Adani Power Ltd.	16.15	-61.2
Reliance Communications Ltd.	13.80	-61.9
Manpasand Beverages Ltd.	149.10	-65.9
Housing Development & Infrastructure Ltd.	20.70	-68.4
PC Jeweller Ltd.	136.50	-70.1
Hindustan Construction Company Ltd.	12.22	-70.2
Reliance Naval and Engineering Ltd.	12.00	-75.6
Kwality Ltd.	22.95	-79.7
Vakrangee Ltd.	66.85	-84.1
Data source: ACE Equity
Price on BSE as on June 29, 2018
Stocks from BSE 500 index