Midcap index @ record high, but 19 stocks have up to 1,300% catchup to do

NEW DELHI: The BSE Midcap Index might be hovering at record high levels, nearly half of the index stocks are at least 25 per cent away from their record levels. Analysts advised investors to remain selective and invest only in quality names that have the backing of institutions and have no balance sheet issues.

Data compiled from corporate database AceEquity suggests one-third of 98 BSE Midcap constituents need to rally at least 50 per cent to reclaim their record high levels; while one-fifth need to more than double to achieve their all-time peak levels. In some extreme cases, some stocks even require a 5-14 times rally from current levels!

The list includes Vodafone Idea, which is quoting in single digits today and needs a 1,342 per cent rally to revisit its all-time high of Rs 123.16 apiece hit on April 17, 2015. Future Retail requires a similar 1,334 per cent surge to revisit Rs 660 level it hit in November 2017. Union Bank needs a 1,119 per cent rally to eclipse its October 2010 high.

Three other banks -- Bank of India, Canara Bank and IDBI Bank -- also hit their record highs 11 years ago. They require 420-660 per cent rally to revisit those previous peaks. It's been 21 years since Zee Entertainment hit a record high of Rs 815 in February 2000. The media scrip requires a 134 per cent rally to revisit those levels.

G Chokkalimgam, Founder at Equinomics Research, is positive on the midcap space and says one should put at least 30 per cent of the investable money in institutional investor-backed midcap stocks.

The analyst advised investors to strictly stay away from companies with known balance sheet issues and book profits on 'hope stocks'. He described hope stocks as the ones from the hospitality and aviation sectors that are being projected to do well when the economy reopens fully.

But treading this space requires extreme caution.

"Like 2018, 30-40 per cent of midcap stocks that are peaking now may not be able to hold the ground in the coming years. Therefore, one should pay attention to valuations, and must not assign more than 200-300 basis points premium valuation to a stock over its 3-5 year historical valuations. Don't chase 'hope' stocks, as when the economy reopens, such companies may not see robust growth and their balance sheets would have been in bad shape after five quarters of hit," Chokkalimgam said.

The BSE Midcap index hit a record high of 21,844.75 on Tuesday. The index was trading flat on Wednesday afternoon.

Data showed SAIL and Jindal Steel & Power have seen a good run in the recent months, but are still 90-135 per cent shy off their record highs. Stocks such as The New India Assurance Co, L&T Finance Holdings, Amara Raja Batteries, Gillette India, Tata Power Company, Mahindra & Mahindra Financial Services, Emami, Info Edge and Ashok Leyland are among the stocks that need 30-130 per cent gains to reclaim their highs.

Kunj Bansal, CIO at Karvy Capital, said many quality midcap and smallcap companies have been able to hold on to their businesses well and have improved market shares and adopted digital technologies. Some of the stocks, he said, have been continuously seeing domestic inflows from individual as well as institutional investors.

"Quality midcaps have been underperforming for the past several years and some of them are available at attractive levels. Whenever there a bull phase at play, the tier II and III players generally give higher returns," said Dipan Mehta, Director at Elixir Equities.

Investors, however, should keep in mind that corporate governance standard is something that is always a risk factor in the midcap space, Mehta cautioned.