Midcap rally cometh, says Deutsche

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Midcap companies may be in for further upside after a 30 per cent gain since August.

These stocks, represented by the BSE Midcap index, were up 10 times in the last bull run between April 2003 and January 2008, compared to a 6 times increase in the Sensex. They were also up 242 per cent between March 2009 and November 2010, when stocks recovered as central banks began to pump in liquidity to the global financial markets. The Sensex was up 156% in the same period, according to a Deutsche Bank report dated 26 March and authored by Research Analysts Abhishek Saraf and Abhay Laijawala.

“Recently, the mid cap index has outperformed by 12 per cent since Aug’13, which should continue as the mid cap index has significant room to catch up after almost three years (Nov’10 to Aug’13) of severe underperformance of 30 per cent,” said the report entitled ‘Mid cap index up 30 per cent since Aug’13 – what now?’

Such a rally would have a positive impact on domestic investors who have been staying away from the market.

“A sustainable mid cap rally could also help reignite retail investor interest, leading to higher inflows for domestic institutional investors. An adverse electoral outcome and any delay in economic recovery are the key risks to the continuation of the mid cap rally,” it said.

Investors have pulled out a net amount of Rs. 5,526 crore from equity schemes so far this financial year, according to data from the Association of Mutual Funds in India.