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Midcap outperformance to continue: Religare Cap Mkts

In an interview to CNBC-TV18’s Menaka Doshi and Anuj Singhal, Gautam Trivedi, Managing Director & Head of Equities, Religare Capital Markets spoke about investor sentiment at the brokerage house’s annual summit and his outlook on the market.

Below is a verbatim transcript of the interview

Anuj: How was the first day of the conference? What is the mood right now and do you think the kind of surge that we have seen in the markets is going to continue?

A: The investor interest in the conference has been tremendous. We have over 50 investors attending and about nine companies. So, given the fact that most of our companies with the exception of Larsen and Toubro (L&T) are more in the midcap space, the interest in general has been very good, very strong.

Anuj: This year midcaps have outperformed quite a bit. Of course today it is a different story but do you think this outperformance that we have seen is going to continue for some more time and what areas do you think that outperformance is going to come from?

A: The outperformance will indeed continue. If you look at the Bull Run that took place from the end of 2003 onwards till the end of 2007 or into early 2008 the Nifty over that period of time rose for as much as 486 percent which is obviously staggering but the CNX midcap index rose 850 percent over that five year Bull Run. So as a function of that the outperformance of the midcaps that we have seen year to date (YTD) over the Nifty will continue for the foreseeable future and I don’t see that slowing down any time now.

Anuj: What areas are you in particular bullish on in the midcap basket because that is really a large pool of ideas that we are looking at?

A: I classify midcaps into two categories. One, companies that are naturally midcaps i.e. that are growing and are very entrepreneur driven and you would hopefully see some of these make it to the large cap space like we have seen in the past – a Sun Pharma or a Lupin. Then you have got stocks which used to be large caps and now become midcaps.

So, you have got a whole bunch of names within the infra space that were multibillion dollar companies but are now down to maybe USD 500 million and in some cases even down to USD 100 million. So, you have got basically two categories here and I think the sectors that I see some of these stocks doing well would of course be infra and we hope that some of these infra names go back to their previous highs; if not previous highs at least double and triple from here as the environment for infrastructure improves.

At the same time the other sectors that we believe where you will see outperformance will be pharma. We are not so strong on midcap IT; we prefer the large cap IT and then I would add in the consumer space. So, consumer stocks, cap goods these are the areas which we believe the midcaps would do extremely well.

Menaka: The kinds of investors that your conference has drawn. You said you had about 50 investors there at the conference, any new money there that you could talk about. Is this sort of extended Modi wave and this confidence that India will do better over the medium and long term, is that bringing new money to the table?

A: There is new money definitely coming to the table and from the quality of investors that we have the two things that I assume attracted them to our conference, and of course there is another conference going on as well simultaneously in Mumbai, is the fact that it is very midcap focussed. Like I said at the outset with the exception of L&T all the other companies presenting today are midcaps. So the interest is clearly very strong and obviously the space that we are focussing this event on is industrials. So that is the other reason I guess a lot of people have actually shown up.

Menaka: What would their typical investment horizon be? The reason why I ask you is because we have been talking to several people at the various conferences and once the questions were trying to get answers to from investors is how they are preparing for any possible winding down by the Fed in the sense that a move up in rates and is that going to mean a serious amount of volatility for Indian markets, midcaps being the one area that will get hurt the most if large liquidity flows are pulled out. So are they giving you a sense of what their investment horizon in India is, how quickly they need to see action on the ground for that money to stay on in India as opposed to move out at the first sign of trouble?

A: Yes, I don’t think that this is volatile money and that will move out at the first sign of trouble and assuming there is any trouble. Frankly it is hard to believe there could be anything significant at least from the domestic side.

Menaka: I am just talking mostly connected to the Federal Reserve moving rates up, that kind of global event that could hurt liquidity flows?

A: I honestly think that is a question which is independence of this conference really and the fact is that this question could have been asked in any point of time. And my answer simply is that the money that has been mostly finding its way to India seems to be for the most part long term money with the exception of some of the exchange-traded funds ( ETF ) flows which could reverse and be slightly more volatile most of the money that we have seen come in year-to-date (YTD) has been long term money. In fact we have a few private equity (PE) investors attending our conferences as well. So they are obviously in here for the much longer haul than even the average mutual fund or Foreign Institutional Investor (FII) investor.


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