Best 5 Mid-Cap Stocks To Buy Now: ICICI-Direct Recommendations

Midcaps; bracing for a new rally….

Ignore noise, buy conviction…

The sharp rally over the past couple of weeks has taken many by surprise. Investors have been left wondering if this rally has further legs or whether this should be viewed as an exit opportunity, especially in the beaten down midcap and small cap space?

We do not foresee midcap and small cap indices to challenge February lows as the current rally is at the early stage of a major up trend.

We recommend investors to start accumulating quality midcap stocks to ride the next leg of major up move (~30% from hereon).

We expect bouts of volatility to persist in the run up to General Election 2019 which should be capitalised as an incremental buying opportunity.

In this note, we focus on examining the market internals of the ongoing rally in midcap and small cap stocks, drawing inferences from prevailing time cycles to ascertain the future course for rest of the 2019.

Our thesis is corroborated by following findings:

• Since its inception in 2003, all three major corrections (2008, 2011 and 2015) in Nifty Midcap index, have matured in 14 months, followed by average minimum returns of 40%, in the following year.

In the previous three instances, Nifty midcap index had rallied 169%, 41% and 48% on completion of the 14-month cycle. Although the Nifty Midcap index has already rallied 12% from February 2019 lows (16045), at least another 30% rally is ahead of us

• Noteworthy simultaneous improvement in twin breadth indicators, confirm maturity of 14-month down cycle, similar to past three instances

a) percentage of stocks above 200 DMA reversing above 50, after falling below 20

b) advance-decline summation index reversing to positive zone after recording extreme bearish set-up