India’s ‘casino’ type midcap rally may be poised for a break

India’s ‘casino’ type midcap rally may be poised for a break

Casino: The better of India’s midcap stocks over their larger peers since the coronavirus pandemic engulfed global markets may take a breather, as per some investors.

On the other side, fund managers at Star Health & Allied Insurance Co. and Smart sun Capital Pte said. They are now avoiding midcaps based on global economic cues and valuations. Both said there is more safety in buying large stocks now that India has become the core of the virus recovery in Asia.

While inflation is setting to rise in the U.S. and China as the world’s two biggest economies are rebounding. The S&P BSE Midcap Index has better the benchmark S&P BSE Sensex Index in all but five months since the end of 2019, as per data compiled by Bloomberg.

India's 'casino' type midcap rally may be poised for a break

Moreover, the smaller stock measure has gained nearly 33% in that span. More than double the rise in the broader benchmark, with the outperformance. Becoming particularly pronounced amid the recent market chill. However, the Sensex is now flirting with a technical correction after climbing to a record high in February. Expensive smaller stocks may have more to lose, the fund managers said.

The easy monetary policies of global central banks have lifted midcaps more than large stocks. As they were relatively very cheap, but that’s not the situation anymore, said Srivastava, chief investment officer at Star Health. The Indian midcap gauge is trading at 21.3 times 12-month forward earnings estimates. While the Sensex is at about 20 times, as per data compiled by Bloomberg.

However, Sumeet Rohra, a fund manager at Smart sun Capital, said “there is more margin of safety in larger names now on valuation. While a continuation of the selloff can evaporate liquidity from smaller names at a very fast pace.

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