Indices Race Ahead Of Sensex

MAKING UP FOR LOST OPPORTUNITY

Mid, small-caps are the new toast of D-Street

THE bull run, which is barely a couple of trading sessions old, has already seen several mid-cap and small-cap scrips log eye-popping gains, with investors betting that an improved market sentiment will help smaller companies raise capital and fix their strained balance sheets.
    Investors are also being driven by the hope that a revival in the broader economy is around the corner, which will lead to a pick-up in demand and lift earnings. Much of the rise has been attributed to 'remorse buying' by fund managers trying to put idle funds to good use, so as not to underperform the market.
    On Wednesday, the BSE Mid-cap index and the CNX Mid-cap index rose 6% each, while the major indices ended 1-2% lower. The 30-share Sensex closed at 14,060.66, down 241.37 points, and the 50-share Nifty shed 48.15 points to close at 4,270.30. So far this week, the mid-cap indices have gained over 20%, compared with a 15% rise in the benchmark indices.
    Yet brokers are cautioning their retail clients against getting carried away. Despite the spectacular rally since the start of the week, earnings prospects of many secondline companies do not look promising, unless there is a broad-based recovery in the economy.
    Besides, a huge amount of hot money has moved into these stocks, as fund managers are finding large-cap stocks expensive after Monday's massive rally. "It is a high-risk, high-reward game, and many investors seem willing to play it," said Motilal Oswal, chairman, Motilal Oswal Securities, on the sudden rush for mid-cap stocks. "Iwould say go for these stocks only if you are comfortable with the valuations. You will find many stocks at reasonable prices because they had been beaten down excessively during the downturn," he said. Investors may use frenzy to offload holdings
SEVERAL brokers are advising retail clients to book profits rather than chase prices, because liquidity in these stocks can dry up overnight at the first signs of disappointment. Also, many market operators are likely to use the frenzy to unload holdings that they were saddled with when the share prices went into a free fall last year. Yet, many investors seem to be keen to load up on midcap stocks once again, despite having suffered bruising losses last year.
    "A few weeks ago, less than 50% of my clients were interested in midcap stocks. Today, that number has risen to 90%," said Saurabh Mukherjea, head of Indian equities at Noble.
    Market watchers said the rally in secondline stocks was only to be expected, considering that frontline stocks were beginning to look fairly valued or even expensive, amid a marked improvement in sentiment.
    "Large-cap stocks cannot double from these levels, but a fundamentally sound medium- or small-cap company can go up manifold in the next couple of years," said Deepak Sawhney, head (research), Networth Stock Broking.
    According to Mr Sawhney, dividend yield and recent earnings performance should be the key parameters for investors looking to put their money in mid-cap stocks. He advises investors to avoid companies with sharp fluctuations in earnings and balance sheet issues.
    "Even if sentiment remains positive, the rally could narrow down quickly to the deserving companies. We may not see a broad rally across the mid-cap space as was the case last time," he said.
    apurv.gupta@timesgroup.com 

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