Largecaps have been instrumental in Sensex and Nifty’s ascent to 40,000 and 12,000, respectively. Riding on their stellar performance, both benchmark indices have surged about 9 percent in the first six months of 2019.
Now, as the second half of the year begins, there are six new stocks that can enter the largecap space based on AMFI methodology. They are PNB, IDBI Bank, Power Finance, Torrent Pharma, ABB India and ACC, according to a note by East India Securities.
These stocks will likely replace L&T Finance, Ashok Leyland, Page Industries, MRF, SAIL and Indiabulls Ventures. These six stocks could move to the midcap category.
After a SEBI circular in October 2017 on restructuring mutual fund schemes to avoid duplicate schemes and rationalize stock holding, AMFI has been mandated with reviewing the list of large/small/midcap stocks based on the 6-month average market capitalisation criteria. This list is released every six months and is due in July first week.
According to AMFI, largecaps comprise the top 100 listed companies in terms of full market capitalisation. Midcaps comprise 101st to 250th company and rest of the companies fall under smallcap category.
According to the East India Securities’ note, there are 23 stocks that could make their entry into the midcap segment. They include Corporation Bank, Allahabad Bank, India Overseas Bank, UCO Bank, TTK Prestige, V-Guard, Kajaria Ceramics, Prestige Estates, Vinati Organics and Symphony, among others.
Thomas Cook, Minda Industries, Escorts, ICICI Securities, Dish TV India, Dewan Housing Finance, Reliance Infra and Reliance Power, etc. are among those stocks that are likely to move out of midcap category.
Mid or largecaps?
Now, the question in front of investors is where should they put their money? The broader market has been underperforming largecaps for quite some time now. The Nifty Midcap index traded at a big discount to Nifty because of a sharp correction in several key stocks.
Nifty Midcap index fell 18 percent and around 45 stocks included in the index corrected in the range of 30-90 percent in the last 18 months.
Volatility has surged, especially in mid and small-cap indices, as market sentiments remain exposed to a slowdown in the economy, concerns around liquidity woes for NBFCs and moderation in consumption on the domestic front, suggest experts.
Midcaps are in a better position to deliver strong returns in the long run. Hence, investors can look at a portfolio of quality mid and largecaps, they say.
“Midcaps now trade at a 14 percent discount to largecaps and offer relatively good risk-reward. However, market sentiment and a potential liquidity improvement in the economy are key pre-requisites for midcaps to perform,” Motilal Oswal Financial Services said in a note.
Top midcap stocks to buy include Federal Bank, DCB Bank, Indian Hotels, Crompton Consumer, KEC International, Ashoka Buildcon, ABFRL and Zensar, the note added.
Bhavesh Sanghvi, CEO, Emkay Wealth Management said that someone who is planning to invest in equities in the age bracket of 30-40 years could consider a portfolio which is a mix of large and midcap stocks.
“The investment horizon is at least five years, we would suggest that the investor may look at equities for the entire amount that he plans to invest,” he said. Sanghvi further added that 70 percent may be committed to large and multicaps and the balance 30 percent may be allocated to midcap funds.