Stocks

Analysts bet on mid-caps as PLI scheme, low interest rates boost their prospects

Suresh P Iyengar | Updated on January 12, 2021 Published on January 12, 2021

Over a long period, mid-cap index outperforms Nifty by a wide margin

Shares of mid-cap stocks are expected to see a renewed rally in the coming days as the domestic institutional investors are turning positive on this sector after pulling out $10 billion in the second half of last year on the back of Covid pandemic impact.

In contrary, foreign institutional investors have pumped in $20 billion in the half-year ended December, against withdrawal of $5 billion in the same period in 2019, on expectations of revival in the fortunes of small and medium companies as the impact of Covid pandemic subsides.

In fact, foreign portfolio investors’ holding in mid-cap stocks is higher at 16 per cent as of September quarter against 14.6 per cent held by domestic institutional investors, thus smashing the myth that foreign investors do not invest in Indian mid- and small-sized companies, said an Edelweiss Mutual Fund report.

 

The broad-based revival in economic growth and continuity of softer interest rate are expected to boost the prospects of medium-sized companies in the long run, said an analyst.

The production-linked incentive (PLI) scheme, initiated by the government to boost the manufacturing sector, will benefit the SMEs rather than large-sized companies, he added.

The lower lending rates and higher demand on the back of fading Covid pandemic impact would be a blessing in disguise for the SME sector though the second wave of Covid remains a concern.

Investment bank Credit Suisse estimates that the PLI schemes can generate $150 billion in incremental sales by the financial year 2027, adding up to 1.7 per cent to the GDP by FY 2027.

With an aim to support AatmaNirbhar Bharat and boost export, Narendra Modi-led government has announced performance-linked incentives worth up to ₹1.46 lakh crore for 10 manufacturing sectors.

Electronics, particularly mobile phone manufacturers, could be the biggest beneficiary of the scheme. Automobile manufacturing, battery production, pharma, food production, textiles and telecom could be the other major beneficiaries.

Credit Suisse estimates that the bulk of this production is likely to be exported and therefore the trade deficit could also shrink by $55 billion.

is expected to benefit the manufacturing sector besides boosting domestic demand.

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Published on January 12, 2021
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