The Hindu Business Line : <I>Mid-cap musings </I>

Mid-cap stocks, after that glorious and sustained rally in the run-up to the May 2006 meltdown, have largely been out of the game in the last year. Large-cap and index stocks have driven the rally since that time. How long will mid-caps remain out of favour and what should be your strategy vis-à-vis them now?

Almost all the fund managers and analysts we spoke to feel that mid-caps will soon join the rally but they caution that returns from current valuations can be had only over the medium to long term. Some, like Mr Siva Subramanian of Franklin Templeton, feel that mid-caps could under-perform in the short term but "fundamentally sound stocks are likely to deliver a good performance over the long term".

Mr Rajagopal of DBS Chola advises investors to allocate to the mid-cap segment "very judiciously". "We need to have a longer-term view insofar as mid-caps are concerned. A partial allocation to mid-caps is advocated in addition to normal allocation to large-caps", he says.

"Mid-caps tend to lag large-caps", says Mr Bharat of Advent Group offering a reason for mid-caps staying out of the rally in the last year. "Over the next 12 months, I expect that mid-caps will join the party in the later six-month period", he feels.

Market strategist Gul Tekchandani is more philosophical: "The mid-caps will join the party, eventually. The disconnect, at points in time, actually provides an opportunity to a stock picker but since most people focus on the index, it seems to be an emotional issue for them to see that there is no 1:1 correlation between the index and their individual stocks."

In the view of Mr C. J. George of Geojit Securities, good mid-cap stocks tend to out-perform the market over a medium- to long-term time-frame. "These stocks deliver superior earnings growth that goes to re-rate them at times when index stocks are exhibiting signs of plateauing", he says.

RAGHUVIR SRINIVASAN

More Stories on : Stock Markets | Stock Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page