India's midcap index can gain another 13%, says CLSA
Laurence Balanco's insights provide valuable perspectives on the Indian stock market's recent performance. The strong growth witnessed in midcap and smallcap indices, coupled with Balanco's positive projection for the midcap index, indicates promising opportunities for investors seeking to capitalize on the market's upward momentum. However, it is important to remain cautious, as the Nifty faces resistance at the 18,800 level and may undergo a period of consolidation.
The positive outlook and the possibility of a 13 percent to 24 percent increase make midcap stocks an attractive option for those seeking substantial returns on their investments, feel market experts. CLSA analyst Laurence Balanco on Monday advised investors to focus on midcap stocks for potential outperformance citing the current market conditions and the breakout in the midcap segment.
From COVID-19 lows, FY21 was the year for large caps. However, FY22 saw strong earnings per share (EPS) growth from the midcap space. In FY23, earnings spread over the largecap and midcap have been maintained. Lately, the Nifty Midcap 100 index has performed decently as well. The category witnessed a rise of 6.5 percent in May amid improvement in returns of midcap stocks. In FY23, the category rose by 1.15 percent. Categories like midcap IT, new-age tech, hospitals, midcap banks and luxury consumption categories, including hotels, have done very well.
Balanco has made a bold prediction regarding the midcap index, foreseeing a significant upswing in the coming months. Balanco believes that the midcap index holds immense potential for growth, projecting a 13 percent increase in value initially, with the possibility of a remarkable 24 percent surge. This breakout in the broader market is an essential development that investors should take note of.
“We think at the moment, we have got 13 percent upside but we have upside target extending towards 24 percent, so that is an important breakout that we have seen in the broader market,” he said.
This breakout from the 18-month consolidation pattern is a significant milestone for the midcap segment, positioning it as a leader in the Indian market and offering potential outperformance opportunities for investors.
When assessing the midcap index in relation to the top 50 stocks, an interesting development comes to light. Balanco pointed out that the midcap index has experienced a breakout in relative price action after an 18-month consolidation pattern. This breakout indicates a shift in market dynamics, with midcaps taking the lead in driving the Indian market towards upward momentum.
“Then if you are looking at the midcap index relative to the top-50 stocks, you have seen that relative price action breakout of a 18 month consolidation pattern, so basically it has the midcaps as the leading part of the Indian market to the upside and that is where we think investors should focus for outperformance going forward,” he mentioned.
While midcaps have been displaying remarkable strength, Balanco also believes that the Nifty, the benchmark index of the Indian stock market, might face challenges in surpassing the 18,800 mark. The Nifty's recent performance has shown signs of consolidation, as it attempts to break through this critical resistance level. Balanco's observation suggests that the broader market could experience a period of consolidation as it grapples with this key hurdle.
Over the past two months, the midcap index has witnessed an impressive surge of 17 percent, outperforming the Nifty, which recorded comparatively modest gains. Simultaneously, the smallcap index experienced an even more substantial rise of 20 percent, indicating a broad-based rally across various market segments.
The significant outperformance of midcaps and smallcaps compared to the Nifty highlights a shift in investor sentiment towards broader market participation. This indicates a growing appetite for riskier assets and a belief in the potential of smaller companies to generate higher returns.
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