IANS | 17 Sep, 2023
There is clearly room for a correction in the mid-cap area, most
particularly as a continuing rise in the oil price has the potential to
create some renewed inflationary noise in India, just as it does in the
developed world, Christopher Wood, analyst at Jefferies said in his
commentary, Greed and Fear.
Still if the major Indian stock market
indices are trading at all-time highs, the real action this year has
been in the mid-cap stocks where gains have been much greater but where
valuations are also much more extended.
The Nifty MidCap 100 Index
has risen by 29 per cent so far this year, compared with a 11 per cent
gain in the Nifty Index. As a result, the MidCap index now trades at
24.1x 12-month forward earnings, compared with 18.7x for the Nifty, Wood
said.
This move has been driven by a renewed pickup in domestic
fund flows. Domestic equity mutual funds’ net inflows have risen to Rs
290 billion in August, the highest level since March 2022, he added.
Still,
by historical standards, valuations for the big cap stocks are not
particularly extended. It is also the case that foreign investors are
not as overweight India as might be thought given that it is now
consensus that India is the long-term structural growth story in Asia,
not China, Wood said.
In this respect, a chart in Jefferies’ head
of India research Mahesh Nandurkar’s presentation at last week’s
Jefferies Asia Forum showed that the 30 biggest global emerging market
funds, managing $210 billion, are only about 1 per cent overweight the
neutral weighting of 15 per cent. This data is as of the end of last
quarter, Wood said.
The above is why any pull back in India is a
buying opportunity. The annualised new private project announcements
rose by 70 per cent YoY to a record Rs 28 trillion in the four quarters
ended 30 June. The other evidence is the share price performance of
companies geared into such order flows.The order flow of the capital
goods majors (L&T, Siemens, ABB and Thermax) has risen by an average
of 25 per cent YoY, on a trailing four quarters basis, for the last six
quarters and up 47 per cent YoY in 1QFY24 ended 30 June. These four
stocks have risen by 35-63 per cent year-to-date, Wood said.
