What's behind the boom in small & midcap stocks? Check free float data

Midcap stocks with lower free float outdid their peers in the past six months in terms of returns, according to an analysis by Kotak Institutional Equities. State-run Mazagon Dock Shipbuilders and Indian Railway Finance Corporation (IRFC) occupy top slots in the list of 20 best-performing midcap stocks, which also features Fertilizers and Chemicals Travancore (FACT), Macrotech Developers, Vodafone Idea, Sun TV Network and Adani Power.

Free float of these stocks is in the range of 10-25%. FACT has the lowest free float of 10%, followed by IRFC (14%), Mazagon Dock (15%), Vodafone Idea (16%), Adani Power (20%), Sun TV (21%) and Macrotech (25%) according to this report.

Meanwhile, REC, which is at the third spot in the list in terms of returns over the last six months, and has a significantly higher free float at 47% and is followed by Dixon Technologies with an even higher free float of 62%.

The average free float of these 20 stocks is 34%.

Kotak research also lists the bottom 20 stocks in terms of returns over the six month period. Federal Bank with 100% free float finds itself in this list along with Navin Fluorine (70%), Voltas (69%), Yes Bank (61%) and Tata Chemicals (61%). The average free float of the 20 stocks stands at 48%.

The report noted a similar trend in the mid-cap rally of 2017, when a number of midcap stocks delivered "phenomenal returns" led by stocks with lower free float. As a caveat, the report said that it is highlighting the similarity in terms of performance and float and not drawing any conclusions from 2017 about the fate of the current rally in midcap stocks.

However, the Nifty Midcap-100 Index declined 15% in 2018 and most companies in the top quartile of performance saw significant value erosion, the report added.

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