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Now playing Big Bull’s thesis! Select midcaps rally up to 86% in 15 days

True to his reading, the trend seems to have started playing out.

, ETMarkets.com|
Last Updated: Jan 21, 2020, 09.37 AM IST
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ET Bureau
RAKESH JHUNJHUNWALA
In his latest interaction with media just a week back, Rakesh Jhunjhunwala said the worst for the market is behind us and midcaps and smallcaps have bottomed out.
Most people on Dalal Street sit up and take note when the Big Bull speaks.

In his latest interaction with media just a week back, Rakesh Jhunjhunwala said the worst for the market is behind us and midcaps and smallcaps have bottomed out.

He said market breadth has started improving in last two months and price movements show a major stirring in midcaps and smallcaps.

True to his reading, the trend seems to have started playing out. Just a fortnight into the new calendar, BSE Midcap (up 2.15 per cent) and BSE Smallcap (up 4.25 per cent) indices have already outperformed Sensex (up 1.47 per cent till January 13).

“Midcap and smallcap stocks will definitely outperform in 2020. Largecaps may get into a zone where they can consolidate for a few years,” the ace investor said.

Select midcaps from PSU, NBFC, pharma and infrastructure sectors have already delivered double-digit returns in the first fortnight of January.

Infrastructure stocks hogged the limelight after the government unveiled plans to invest about Rs 102 lakh crore in the sector over next five years to achieve its $5 trillion GDP target by 2024-25.

With a 16.55 per cent rally, Steel Authority of India emerged the top gainer in the midcap pack. It was followed by Motilal Oswal Financial Services (up 16.27 per cent), Alkem Labs (up 16.13 per cent) and Varroc Engineering (up 12.66 per cent).

Hudco, GMR infrastructure and PNB Housing Finance advanced over 10 per cent each.

As of September end, Jhunjhunwala and his wife Rekha Jhunjhunwala together held stakes in 28 midcap and smallcap stocks. They included Delta Corp, Escorts, Firstsource Solutions, Ion Exchange, VIP Industries, The Mandhana Retail Ventures, SpiceJet and Orient Cement, among others.

Jhunjhunwala portfolio september 30

While December quarter shareholding figures for all the names are not available yet, data released so far suggests through October-December the Big Bull trimmed his holdings in at least five midcaps: Agro Tech Foods, Firstsource, Federal Bank, Orient Cement and Edelweiss Financial Services. He was seen increasing holdings in Titan and Rallis India.

“While valuations of several PSU stocks are attractive, they have not recovered because there is a fear of disinvestment in March quarter. If that does not happen, PSUs could turn attractive,” Sankaran Naren, another market veteran and CIO of ICICI Prudential AMC, said last week.

Among other smallcap names, Exbicash World Money India and Simplex Infrastructures have advanced 86 per cent and 55 per cent, respectively, year to date. Exbicash World Money is the new identity of Weizmann Forex, which effected a name change from January 1, 2020.

Other stocks that rallied 40-50 per cent during this period included Reliance Industrial Infrastructure, Indiabulls Integrated Services, Peninsula Land, Indiabulls Real Estate and Patel Engineering, among others.

Stellar returns in these midcaps and smallcaps came as equity benchmarks Sensex and Nifty continue to scale fresh record highs.

Mayuresh Joshi, Head of Equity Research at William O'Neil, says quality largecaps are still seeing interest in the market despite very expensive valuations.

“This is one space where investors find comfort that earnings will still come on a consistent basis. So, people don’t mind paying the premium. Quality names with earnings visibility and not-so-extensive leverage on balance sheets may throw up decent performers in the broader market. One should focus on leaders in these spaces,” he said.

Picking midcap and smallcap names for value seekers, YES Securities named Ashok Leyland, Birla Corporation, KNR Construction, Repco Finance, Cochin Shipyard and Polycab India among its high conviction ideas for 2020.

Dipan Mehta, Founder & Director, Elixir Equities is positive on second-rung counters. “Maybe the time has come when we should see a revival in smallcap and midcap names. Typically, whenever the economy starts doing better and as soon as you have little bit of earnings visibility and some amount of volume growth in key industries, you will see smallcaps and midcaps do well suddenly. They will then benefit from earnings growth as well as re-rating of PE multiples.”

“Maybe in 2020 and beyond, we will see some spectacular rallies as far as midcaps and smallcap stocks are concerned,” Mehta said.

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