Midcap and small cap funds
Indian equity markets have had a phenomenal run in the last five months
on the back of the decisive mandate received the BJP led NDA
government. The first Union Budget presented by the new government
amply addressed the strategic need to improve the investment climate by
emphasising on measures to create a framework for low & stable inflation,
setting fiscal deficit on a sustainable path through tax & expenditure
reforms and setting up a broad based inclusive growth framework for a
sustainable market economy. In this scenario, we expect many sectors,
particularly among cyclicals (banks, infrastructure, capital goods, power,
etc.) to enter a new phase of upturn in terms of financial performance as
de-bottlenecking of the policy logjam and a conducive operating
environment will drive the financial performance. Investment in midcap
funds should help capitalise on this opportunity. However, given markets
have already rallied sharply in a short span of time, investors should utilise
market corrections to accumulate midcap funds in the portfolio with
overall allocation limiting as per their own risk profile
Foreign institutional investors have been major drivers of the markets
as they bought equities to the tune of more than | 70000 crore in the
calendar year 2014 so far. FII ownership in midcaps is currently lower
compared to previous bull runs. FIIs may buy into these midcap stocks
as growth starts picking up and the capex cycle gets revived
The midcap and small cap space in cyclical sectors (banks,
infrastructure, capital goods, power, etc.) can offer better value, going
forward, as these are significant re-rating prospects
While the S&P SBE Sensex is trading above 24% of its previous high
made in 2008, the S&P BSE Midcap and SME small caps are still 8%
and 27% below their respective all-time high levels witnessed during
2008. This leaves significant room for broader markets to play catch up
and deliver outperformance over the next two or three years
Midcap funds are well placed to capitalise on this opportunity along
with optimum diversification. Although there may be some
consolidation in the near term given the sharp run up in recent
months, midcap funds are likely to generate alpha in the overall
portfolio in the next two or three years
Indian equity markets have had a phenomenal run in the last five months
on the back of the decisive mandate received the BJP led NDA
government. The first Union Budget presented by the new government
amply addressed the strategic need to improve the investment climate by
emphasising on measures to create a framework for low & stable inflation,
setting fiscal deficit on a sustainable path through tax & expenditure
reforms and setting up a broad based inclusive growth framework for a
sustainable market economy. In this scenario, we expect many sectors,
particularly among cyclicals (banks, infrastructure, capital goods, power,
etc.) to enter a new phase of upturn in terms of financial performance as
de-bottlenecking of the policy logjam and a conducive operating
environment will drive the financial performance. Investment in midcap
funds should help capitalise on this opportunity. However, given markets
have already rallied sharply in a short span of time, investors should utilise
market corrections to accumulate midcap funds in the portfolio with
overall allocation limiting as per their own risk profile
Foreign institutional investors have been major drivers of the markets
as they bought equities to the tune of more than | 70000 crore in the
calendar year 2014 so far. FII ownership in midcaps is currently lower
compared to previous bull runs. FIIs may buy into these midcap stocks
as growth starts picking up and the capex cycle gets revived
The midcap and small cap space in cyclical sectors (banks,
infrastructure, capital goods, power, etc.) can offer better value, going
forward, as these are significant re-rating prospects
While the S&P SBE Sensex is trading above 24% of its previous high
made in 2008, the S&P BSE Midcap and SME small caps are still 8%
and 27% below their respective all-time high levels witnessed during
2008. This leaves significant room for broader markets to play catch up
and deliver outperformance over the next two or three years
Midcap funds are well placed to capitalise on this opportunity along
with optimum diversification. Although there may be some
consolidation in the near term given the sharp run up in recent
months, midcap funds are likely to generate alpha in the overall
portfolio in the next two or three years
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