Sensex, Nifty Surge; But Mid & Small-cap stocks plunge
One aspect which is baffling is that though the Sensex and Nifty are surging to All Time Highs, mid-cap and small-cap stocks are sinking to new lows.
According to Shraddha Babla, the charming research analyst with Bloomberg, the Sensex has breached the ATH of 37,000 while Mid-cap and Small-cap Indices are still languishing at a great depth from their ATHs.
— Shraddha Babla (@shraddha_babla) July 26, 2018
This is corroborated by Ekta Batra, the associate editor of CNBC TV18.
— Ekta Batra (@ekta_batra) July 26, 2018
As Indian television channels go all out on celebrating Sensex and Nifty hitting all-time highs, one must note that the mid-cap index is down 11 pct, and small-cap index is down 15 pct YTD. Most mutual funds are way away from their January peak. So, not quite a celebration
— Aditya Kalra (@adityakalra) July 26, 2018
Suman Layak & Shailesh Menon of ET Now have investigated into the reasons for this bizarre paradox.
According to the duo, the blame deserves to be pinned on SEBI for its hare-brained policies relating to Mutual Fund classifications and the dreaded Additional Surveillance Mechanism (ASM) regulations.
(Image credit: ET)
Shankar Sharma is understandably furious at the sorry state of affairs.
The meltdown in mid-cap and small-cap stocks is caused by “forced selling into illiquidity, leading to a domino effect collapse on entire segment,” he fumed.
Two types of bear markets: fundamental & technical. Fundamentals in small caps are intact. So what's caused the meltdown?Technical factors ie, trading curbs, hence low liquidity, hence forced selling into illiquidity, leading to a domino effect collapse on entire segment
— Shankar Sharma (@1shankarsharma) July 23, 2018
Time is ripe to aggressively buy mid-cap stocks
However, while the academicians are scratching their heads at the baffling state of affairs, the practitioners are busy taking advantage of the bargain-basement prices and buying stocks.
Shankar Sharma himself gave the buy call by declaring that “Fundamentals in small caps are intact” and that it is “technical factors” which has caused the mayhem.
Porinju Veliyath needs no excuse to be bullish.
“Mid & small-cap carnage seems overdone. Paranoia will vanish soon,” he thundered, implying that we do not have much time to take advantage of the fire sale.
Mid & small-cap carnage seems overdone. Paranoia will vanish soon. Money hiding behind top 15-20 stocks will soon start looking for rational valuations.
— Porinju Veliyath (@porinju) July 19, 2018
Sunil Singhania and Sandip Sabharwal have also come out with all guns blazing and recommended an aggressive buy.
This is the time to go out and buy
Strong Established Mid Cap Cos
Fallen 25-50% from the top
Have improving business outlook
Downside in many such companies is limited now and upside potential higher.
Remember ACTUAL RISK & PERCEPTION OF RISK move inversely.
— sandip sabharwal (@sandipsabharwal) June 28, 2018
Had mentioned on May 19, 2018 to get wallets ready for big opportunity coming in 2-4 months. Exactly in two months we have this “stocks on sale” opp. Build positions over next two months for super returns. BE POSITIVE! https://t.co/nYFRJdxDbH
— Sunil Singhania (@SunilBSinghania) June 28, 2018
Five high-quality mid-cap stocks to buy now
The mandarins at Outlook Business know that novices need more than theoretical advice to buy stocks. We need specific and tangible stock ideas.
So, they have collated the following five stock ideas after consulting numerous renowned experts.
(i) Indraprastha Gas – Monopolistic safe-haven with stable business
Indraprastha Gas ticks all the boxes required of a sensible investment candidate.
It boasts of a monopoly in the gas distribution business coupled with high RoE and RoCE. The P/E is quite reasonable at 19xFY20.
“IGL offers investors a rare mix of volume growth and healthy margins, which is a sweet combination,” an expert is quoted as advising.
SP Tulsian is also gung-ho about Indraprastha Gas. “I am very much positive about the Co,” he said, reeling out impressive facts and figures as to why the stock is an irresistible investment opportunity.
(ii) East India Hotels – revenue to grow at 15% CAGR in the next three years
Porinju Veliyath and Ashish Chugh were amongst the first to predict that the hotel sector is emerging out a Bear phase and is poised to shower multibagger gains upon investors.
3&4 Star hotel operators are in a sweet spot. F&B at 5% GST. Room rates are mostly below Rs.7500 (18% GST). Margins to go up. Advantage at the expense of 5 Stars. Few listed companies in the space look attractive. Am I missing something?
— Porinju Veliyath (@porinju) November 10, 2017
Industry has seen a down cycle followed by multi year consolidation – leading to a a leaner structure & cost rationalisation. Case of operating leverage with higher occupancy. https://t.co/4pjbmrkSOW
— Ashish Chugh (@hiddengemsindia) November 11, 2017
Based on this theory, Royal Orchid Hotels, which boasts of an “asset light business model”, has been recommended as a “strong buy” by leading experts.
Indian Hotels, the blue-chip five star hotels chain of the reputed Tata group, is also a strong contender for our money.
East India Hotels, another fail-safe mid-cap blue-chip, is also a worthy candidate in the fray.
“Given that the major chunk of room supply will only come post 2022, EIH is well placed to take benefit of low supply and high demand,” a leading expert said.
“The properties of EIH are strategically located in business as well as leisure hubs. The rise in the occupancy levels supported by healthy demand would lead to rise in room rates going forward, thus, leading to robust margin expansion,” another opined.
EIH is also a favourite of mega Billionaire Mukesh Ambani which implies that his good luck magic charm will take the stock to new heights.
(iii) to (v) TVS Motor, Natco Pharma & Mahindra Cie Automotive
The other three stocks which have been given a clean chit and ushered into the coveted buy list are TVS Motor, Natco Pharma & Mahindra Cie Automotive.
All three stocks are fail-safe powerhouses and the logic given in respect of the buy recommendation for each is flawless!