Midcap index hits all-time high as cash-rich funds go shopping

MUMBAI: BSE’s midcap index surged to a record high on Friday as domestic mutual funds, flush with money in their mid- and small cap schemes, and high networth traders lapped up these shares. Analysts said this category has benefitted from the improved sentiment on Dalal Street, thanks to the easing of the Greek debt crisis.

But, fund managers warn valuations of these stocks are quite high after their run-up since September 2013.

Shares of Glenmark Pharma, HPCL, Aurobindo Pharma, Indiabulls Housing, Cadila Health, Divi’s Lab, Britannia Inds and Motherson Sumi hit their 52-week highs on Friday.

The midcap index hit a record high of 11,252 in intra-day trade on Friday, before closing at 11,220, up 0.20 per cent. The Sensex is still 5 per cent below its all-time high.

The midcap index has gained 11 per cent from its lows of June 11; whereas the Sensex has risen 8 per cent during the same period. Fund managers do not rule out further upsides in these stocks, thanks to the continued inflows into midand smallcap schemes. But, they remain uncomfortable about the valuations.


"I would say midcap stocks are fully valued at this point of time," said S Naren, chief investment officer, ICICI Prudential Mutual Fund. The price to earnings multiple (P/E) of the midcap index is at 23.7 times, while the Sensex is trading at 23 times its reported earnings of the past 12 months. In the BSE Midcap index, 40 out of the 77 stocks have gained more than 10 per cent since June 11. Essar Oil, Glenmark Pharmaceuticals, Hindustan Petroleum, Union Bank of India, Eicher Motors and Godrej Industries are some that have rallied between 20 per cent and 60 per cent over the same period.

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Fund managers said there is still room for upsides in some mid- and smallcap stocks.

"We would advise investors to consider midcap stocks from the housing finance sector, NBFCs and road segment," said Kunj Bansal, ED and chief investment officer at Centrum Wealth Management. "Valuations of good quality midcaps have moved higher in past two months, but we say that there is still room for further increase."

Mutual funds have turned major buyers of midcaps stocks over the past few months and have pumped around Rs 25,000 crore in past three months into Indian stock market.

FIIs have also started participating in buying midcap stocks recently after remaining net sellers in May and June.

Edelweiss has DCB Bank, Cholamandalam Finance, Pokarna, Natco Pharma, Ratnamani Metals, Suprajit Engineering and Indo Count Industries as its top picks in the midcap space.