The Hindu Business Line : Investors turn to cos in mid-cap sector at lower valuations

Mumbai, June 28 After making handsome returns in some of the top index stocks, investors have now turned their attention to companies in the mid-cap sector at lower valuations.

The BSE mid-cap index has been breaching its life-time high daily over the past two weeks, with analysts and investors betting on the stock-specific action in mid-cap companies.

The BSE mid-cap index closed at its all-time high today at 6,450.26 points, up 33.19 points or 0.52 per cent. The index has gained 53.23 per cent on a year-on-year basis.

Marketmen said the rally has occurred for mid-cap stocks as their lower valuations vis-À-vis the large-caps have been the deciding factor to draw investor attention.

“In the past year, apart from the last two months, the mid-cap stocks had significantly underperformed the large-caps. When the Sensex rallied from 12,500 to 14,000 levels, the major Sensex companies were trading at 14-18 times their one-year forward earnings, but the mid-caps were largely under-valued, trading at seven-eight times one-year forward earnings, and did not participate in the rally,” said a mid-cap analyst. “However, with the FY07 numbers arriving in June, the mid-caps have shown better value and visibility along with strong order book positions for a lot of companies indicating high growth,” he added.

Consistent good results from the mid-cap companies have made their stocks attractive. “For the last 4-5 quarters, the mid-caps have delivered very good results. Also, the market breadth in the mid-cap index has been very healthy,” said Mr Amitabh Chakraborty, President – Equity, Religare.

Better improvement in margins along with backward and forward integration among companies have also been positive factors for these companies.

“Volumes in the mid-cap stocks have been picking up which has turned the attention of institutions like mutual funds and foreign institutional investors towards them as they generally enter and exit stocks with high volumes,” said Mr Girish Solanki, mid-cap analyst, Angel Broking.

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