S&P BSE Mid-cap index hits lifetime high

Outperformed the benchmark in the past month; analysts recommend caution in buying these, given the run-up

The BSE exchange's S&P BSE mid-cap index climbed to a record high on Thursday, even as the bourse's benchmark Sensex index is still five-odd per cent shy of its all-time high in early March. The index for mid-tier companies touched a high of 11,209 in intra-day trade, on the back of strong buying by foreign investors. The previous high was on April 15. Analysts say mid-cap companies are likely to continue outperforming the benchmark in the near term.

At the end of the day, the S&P BSE mid-cap index was up 1.3 per cent or 147 points, at 11,198, also a record high on closing, as compared to a 0.9 per cent rise in the Sensex and a 0.75 per cent rise in the bourse's small-cap index.

Since June 11, when the Sensex hit a recent low of 26,371, the mid-cap index has gained 11 per cent, the small-cap index 10 per cent and the Sensex eight per cent in the period.

Foreign institutional investors were net sellers in the past two months but have turned net buyers in this month. Thus far in July, foreign investors have bought a net Rs 4,834 crore of Indian equities, shows data from the Securities and Exchange Board of India. They were net sellers of Rs 3,460 crore in May and Rs 6,149 crore in June.

Explains Deven Choksey, managing director, KR Choksey Shares and Securities: “The run-up thus far has been due to value buying in select stocks. A number of mid-caps are benefitting from infrastructure-led initiatives, including the Digital India ones that are promising a larger pie of business to these mid-size companies. As a result, investors are re-looking at these companies. Though the run-up has been sharp and investors should be cautious, they should accumulate now at lower levels.”

Of the 77 stocks from the S&P BSE mid-cap index, 34 have gained more than 11 per cent since June 11. Essar Oil, Glenmark Pharmaceuticals, Hindustan Petroleum Corporation (HPCL), Union Bank of India, Eicher Motors, Godrej Industries and Crompton Greaves are some that have rallied more than 20 per cent in the past month.

Cadila Healthcare, HPCL, Glenmark, Tata Chemicals and Cummins India are five stocks from the index which hit lifetime highs on Thursday.

Outlook
Given the sharp run-up and the performance of mid-cap stocks, analysts recommend caution while investing in this space. “Mid-cap stocks are now playing catch-up to their larger peers that had seen a good run. The broad-based rally in the mid-and small-cap space will now be a concern. The rally in B-Group shares might not be a good thing from a market stability viewpoint. We suggest investors now be cautious on this segment. Having said that, one can still look at names where there is earnings growth visibility,” said Ravi Shenoy, assistant vice-president (mid-cap research), Motilal Oswal Securities.

Adding: “We remain positive on oil refining and marketing companies. We believe Bharat Petroleum’s earnings can double from what they were last year and this could see the stock getting re-rated.”

In the mid-cap segment, IndusInd Bank, Glenmark Pharma, Cummins India, LIC Housing Finance, Mindtree, Rallis India, Persistent Systems, JK Lakshmi Cement and Ashoka Buildcon are the top picks of R Sreesankar, head of institutional equities at Prabhudas Lilladher, according to a recent report.