Are You Looking For Mid-Cap Stocks That Can Turn Into Mega-Cap Stocks?

 

Are You Looking For Mid-Cap Stocks That Can Turn Into Mega-Cap Stocks? Check This Guide & Stock Examples

 

 

It is the ultimate dream for novice investors like you and me to find mid-cap stocks that can turn into mega-cap stocks and create mind-boggling wealth for ourselves. Fortunately, there is an authoritative guide which will guide us to find these stocks together with real-life examples of potential winners

 

Motilal Oswal and its team of ace researchers deserve to be given an award for their relentless efforts in educating novice investors like you and me on the techniques to be adopted to find super-duper multi-bagger stocks.

 

The 18th Wealth Creation Study tutored us on how buying stocks that are growing at a steady and consistent pace can create enormous wealth over the long term.

The 19th Wealth Creation Study opened our eyes to the magical concept of “100-bagger” stocks. The Study not only explained the theory but also handed over seven potential 100-bagger stocks to us on a platter.

Now, the 20th Wealth Creation Study explains in simple terms the fine art of finding mid-cap stocks that are destined to become mega caps.

The notable aspect is that the technique is not based on a theoretical or classroom analysis but is derived from a meticulous analysis of real-life stocks like Ajanta Pharma, Symphony, PI Industries, Page Industries, Eicher Motors, etc which have transitioned from mid to mega caps in the short period of a decade or less.

The Study goes into masterful detail as to what circumstances take a company from ‘mid’ to ‘mega’ status. However, for our purposes, it is sufficient to note that this transition is most likely achieved by those companies that exhibit the following characteristics:

(i) The company must be mid-sized (M);

(ii) The quality (Q) of the business and the management must be top-notch;

(iii) There must be predictable growth (G) in the earnings;

(iv) There must be longevity (L) for the quality and the growth and

(v) The stock must be available at a reasonable price (P).

These six characteristics are captured in the Study by the acronym “MQGLP”.

Now, the all-important question is as to which are the stocks that satisfy the conditions of “MQGLP” and are ready to transition from mid to mega caps.

While the Study itself is uncharacteristically silent about potential stocks that satisfy the “MQGLP” criteria, we can find the answer to the question in the stocks held by the Motilal Oswal MOSt Focused Midcap 30 Fund. It stands to reason that Motilal Oswal would have only picked those stocks for their midcap fund which they believe will transition from mid to mega.

It is worth noting that though the name of the Fund suggests that there are ‘30’ stocks, the portfolio presently has only the following 20 stocks:

Scrip Name	Weightage (%)
Max India Limited	8.99
CRISIL Limited	8.43
Amara Raja Batteries Limited	7.79
Mindtree Limited	6.84
Tata Elxsi Limited	6.63
WABCO India Limited	6.27
Sundaram Finance Limited	4.74
Ajanta Pharma Limited	4.65
Repco Home Finance Limited	4.41
S H Kelkar and Company Limited	4.41
Multi Commodity Exchange of India Limited	4.26
Bajaj Finance Limited	4.25
Voltas Limited	4.12
Pantaloons Fashion & Retail Limited	3.80
Jubilant Foodworks Limited	3.40
Havells India Limited	3.27
Hindustan Petroleum Corporation Limited	3.22
Gujarat Pipavav Port Limited	2.82
Thermax Limited	2.74
Power Mech Projects Limited	2.08

One glance is sufficient to tell us that each of the stocks in the portfolio fully satisfies the “MQGLP” doctrine because each is a (a) mid-cap, (b) with top-quality business and management, (iii) with predictible growth potential, (iv) with infinite growth prospects and (v) the valuations are reasonable.

The proof of the pudding is in the eating. The Motilal Oswal MOSt Focused Midcap 30 Fund has given an annual return of 32% which heavily outperforms the CNX Midcap return of 13.72% and Nifty return of (0.2)% in the same period.

Period	Scheme	Benchmark
	MOSt Focused Midcap 30 Returns (%)	CNX Midcap Returns (%)	CNX Nifty Returns (%)^
Since Inception* till Sept. 30, 2015	55.92%	38.80%	17.00%
Sept. 30, 2014 to Sept. 30, 2015	32.00%	13.72%	-0.20%

*Inception date: 24-Feb-14.

Now, I can tell you from personal experience that being able to achieve an annual return of 32% is no mean feat, especially bearing in mind that each of the stocks is a well-known and well-discussed stock.

This performance becomes even more impressive when you bear in mind that even highly acclaimed fund managers like Prashant Jain of HDFC Mutual Fund and Srinivasan of SBI Mutual Fund are struggling to make ends meet.

The important question that Motilal Oswal’s Study prompts us to ponder over is why we should scour the bushes and bother ourselves with junkyard stocks when such top quality stocks are available at relatively bargain prices and have the potential to give high returns for several decades to come!