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Our Bureau

Mumbai, Sept. 10 Foreign institutional investors are moving out of the top 50 Indian stocks and looking at the mid-cap stocks to be a part of the Indian growth story, according to an official at Noble India, the Indian operations of a UK-based research-led investment bank that has recently set up shop here.

To capitalise on this trend, the company will offer advisory services to FIIs interested in investing in stocks below the top 50, said Mr Saurabh Mukherjea, Head of Indian Equities at Noble.

Noble’s research says that the 200 stocks below the top 50 have fundamentals that are either comparable or better than the top 50.

“Despite this, they trade at a discount of 20 per cent to the top 50. In fact, on P/E terms, over the past 12 months the top 50 stocks have been re-rated by 17 per cent, the next 200 have been de-rated 23 per cent,” said Mr Mukherjea.

Analysts agree that the mid-cap stocks that have declined quite a bit in the bear run are trading at a discount at the moment and their valuations have indeed become attractive.

“There are many mid-cap stocks that are at very attractive valuations; and one should remember that a lot of large-cap stocks were once upon a time mid-cap stocks,” said Mr Prashant Bhansali, Director, Mehta Equities.

Mr V.K. Sharma, Whole Time Director & Head of Research, Anagram Stock Broking, agrees that these companies lack the exposure and remain under-researched and that there are some good scrips available in this segment.

Noble will initially cover the technology, consumer, bank and financial services, power and infrastructure sectors. These will include stocks with market capitalisation of less than $5 billion.

Mr Mukherjea said the infrastructure sector, which includes the healthcare, insurance and education sectors, is under developed and have a lot of potential.

“There hasn’t been enough coverage of these stocks by analysts and, therefore, investor attention is rather limited. This will, in turn, increase the transaction cost of these stocks and make them illiquid. These stocks have been stuck in this cycle for the past four to five years at least. What we are doing is helping the FIIs capitalise on this ‘sweet spot’ of 200 stocks just below the top 50,” said Mr Mukherjea.

He added that the FIIs have a lack of exposure to these mid-cap stocks as there are no good analyses available on them and hence “don’t know where to put their money”.

Noble will also offer pre-IPO research on Indian companies, access to industry experts from the broader business community and research.

Noble India has employed 23 people, out of which 10 are focused on Indian equities. “As of now, we will only focus on the equity research business, and are not looking at providing asset management or merchant banking services (which Noble group in the UK offers),” said Ms Sarojini Ramachandran, Indian Equity Sales, Noble.

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