Mid-Cap Stocks Outshine Blue Chips

The dark shadow cast on the stockmarket by recent political uncertainty seems to be subsiding, with institutional investment interest clearly shifting from key pivotals to mid-cap stocks.

Two mid-cap stock indices, prepared by Credit Rating Information Service of India Ltd (Crisil) and the National Stock Exchange (NSE) respectively have outperformed the market, which is driven by key pivotals.

While the 30-share BSE sensex declined from 3,801.71 on May 2 to 3,769.34 yesterday and the NSE-50 fell from 1,069 to 1,053.35, the NSE mid-cap index rose from 1,101.80 to 1,128.85 during the same period. The Crisil mid-cap index fell from 435.86 on May 2 to 414.09 on May 7, but recovered yesterday to close at 422.96.

 

Says Ashith Kampani, head of equity dealing at JM Share and Stock Brokers: There is no doubt about the fact that the focus has shifted to mid-cap stocks. Institutions are diversifying their portfolio. Foreign institutional investors (FIIs) which have additional money are investing in these stocks while those which do not have access to additional funds are shifting investment. If you consider the spread of the FII investment in 1994, it was over 200 stocks.

It narrowed down to 50-70 stocks during the slump period in the stock market. It now seems to be rising to those (1994) levels.

Analysts say that political uncertainty has been discounted by market players following the passage of the Finance Bill in the Lok Sabha. However, the diversification of portfolios has been done selectively, in quality stocks.

Says Sanjay Agarwal of Lloyds Securities: The key pivotals in the A group have already appreciated by about 30-40 per cent. Since there is much more confidence in the economy, people have started to look into other companies where the appreciation has not been so high.

These companies are also large companies with an approximate market capitalisation of $ 250 million.

The specific sectors where there has been growing interest are banking, software, refineries and pharmaceuticals. The trend appears to continue as there is still a lot of value in larger B1 stocks.

Stocks that are represented in these indices include Bharat Earth Movers Ltd, Digital Equipment , Kodak India, and Cipla.

According to a dealer at a leading institutional brokerage, FIIs have been actively buying stocks like ITI, HMT and Gas Authority of India.

He said: The FII interest seems to be in good value stocks as pivotals are more sensitive to political uncertainty and oil price hike. The risk is minimised in B group stocks as the fluctuation is not all that high.