Bulls & Bubbles: Midcaps will move but not as fast in 2024

• Midcaps saw good participation from retail, HNI and mutual funds in 2023.
• Midcaps might not keep up with their outperformance in 2024, but investor interest will continue.
• High quality midcaps like Tata Tech, IREDA and JSW Infra listed in 2023.
• A lot of sunrise and growth sectors with consumption themes are captured in midcaps, experts say.

The year of 2023 will be remembered for its mid and small cap bull run. While Nifty gained 13% during the year, Nifty midcap surged 3x faster – at 39%. Small caps were even more agile swelling by 48%, leaving large cap stocks in a bear market zone. After a good year, most people are asking — will the midcap party spill over into the New Year?

In 2023, midcaps across sectors saw their order books swell, profitability rise due to benign commodity prices and more such. In the coming year, a lot of troubles could be exposed, says Kotak Securities.

“The largecap and high-quality midcaps are in a bull market, with the weak operating performance in the short term and likely deterioration in fundamentals in the medium term being largely ignored by the market. Several low-quality midcaps and smallcaps in general are in a bubble market, with the market attaching unrealistic narratives to many stocks,” said Kotak Securities.

Ripe for correction?

The time seems ripe for a correction, especially in the short-term. “Investors should remember that after such a strong rally in midcaps, there is a high probability that these stocks might witness heightened volatility in the short term,” Nishit Master, portfolio manager at Axis Securities Portfolio Management Services told Business Insider India.

Experts believe only those midcaps that show good earnings performance will be able to hold on to their high valuations.

“In the short term, we might witness profit booking in the small and midcap space by traders as they move from stocks and sectors that have done exceedingly well to sectors and stocks where they feel they can hunt for bargains. However, long-term investors will stick to well-performing stocks where the earnings growth trajectory still remains strong,” says Master.

Some midcaps however hold a 15-20% upside as some sectors have room for growth, say experts. “Most stocks are ahead of their target price due to change in the business cycle as well as the environment. But there is still room for growth in defence and sugar stocks as the cycle is favourable, and policy also helps,” says Vaibhav Kaushik Research Analyst at GCL Broking.



The midcap sun will keep shining

Midcaps might not see the sharp run, but investors are far from swearing off these stocks. One clue of this comes from the heavy inflows into these categories of mutual funds.

As more and more investors are rushing to open mutual funds, a record amount of ₹21,519.98 crore went into midcap funds, according to Association of Mutual Funds in India (AMFI). As per the latest data available, investors poured in as much as ₹2,665.73 crore in November.

There has been a lot of direct participation from retail and HNI investors in the markets too. That’s because midcap stocks have many interesting themes that large caps do not offer.

“A lot of companies in the consumption theme like Quick Service Restaurants (QSRs) or luggage companies, transportation and logistics companies, manufacturing and cap goods also fall under midcaps. Many upcoming and sunrise sectors are getting captured in the midcaps,” says Jaiprakash Toshniwal, senior equity analyst at LIC Mutual Fund.

Moreover, the many successful initial public offers (IPOs) of the year also added a lot of variety if not velocity to the midcap index. “A lot of freshly listed companies have a marketcap between ₹8,000-25,000 crore which is the midcap category,” says Toshniwal.

Tata Technologies, JSW Infrastructure, IREDA, and Honasa Consumer etc. are some newly listed mid cap stocks that have piqued investor interest. If the primary markets keep up with their fervour, there will be more options for investors.

In the coming year, investors might become selective of their midcap bets, but won’t go slow. “Midcaps’ overall capital efficiency has improved as seen from their return on equity (RoEs) in 2023. We believe that small and midcaps have the potential to outperform large caps in the medium to long run. Still, the extent of outperformance might not continue in 2024,” says Master.

Everyone know that Market is on boom nowdays ...we can say that post covid 19, Indian stock market picked up pace with a resound growth trajectory .... Here we are digging out the picture of growth Story of last 3 years in all market components & trying to fetch the picture behind this with proper set of data .... Overall picture we can consider in NIFTY 500 Indices (top 500 companies in market caps) Nifty 100 (constitute the top 100 companies in market cap) Nifty Midcaps 150 (constitutes next 150 companies according to market caps behind nifty 100) Nifty smallcaps 250 (constitutes next 250 companies according to market caps behind nifty midcaps 150) A long Thread .....(please read till last) Continues .... $NIFTYMIDCAP100.NSE

— (@StockAce_ResearchAnalyst) December 11, 2023