May 29, 2007

Value in midcaps ?

I have written earlier that there seems to be more value in the midcap space than Large caps represented by the Sensex and Nifty. The above hypothesis came about as I am finding far more ideas in the midcap than the large cap sector of the market.

I decided to check the above hypothesis and generated the above two charts for the Nifty index and CNX midcap. The nifty index has appreciated by around 23% in the last year, whereas the midcap index has increased by around 13 %. Does this prove my hypothesis. Yes and no !. Yes because some of the stocks have come down quite a bit and may be worth investing. No, because the midcap index as a whole is not too cheap, currently trading at around 17 times PE.

So blindly buying into the index may not make sense, but picking specific stocks would.

Based on the above view I tried to look for some mutual funds in the midcap space and found the following interesting. I am listing the negatives of each of the funds. The returns of the funds have been fine and they may be worth a look

Birla midcap – This is a 5 star fund. It does not have a very long operating history. The fund has been around 3 years and the last 2 years performance has not been great

Sundaram mid cap – This fund has delivered good performance in the long run. However the last 1 year performance has not been great. Also the fund has a new fund manager. The fund is extremely spread out and has more than 70-80 stocks in the portfolio

Franklin prima fund – This fund has the longest operating history. It has done well in the past and the fund manager has been around from the beginning. The manager follows a buy and hold philosophy and has higher portfolio concentration. The last 3 year performance has been average though.

As usual, the fund expenses are high and the volatility of these funds is also high. An SIP mode of investment may be a good approach.

In addition, funds like HDFC equity and Franklin prima plus have a diversified approach and can move between various caps. These funds may also be good way of investing in the mid-cap space too as HDFC equity has around 50% exposure midcaps and Franklin prima plus has around 35-40% exposure to midcaps.

You can look for the details for each fund at valueresearchonline.com. I am not recommending any of the above funds, just laying out the facts for some funds which I find worth investigating further in the midcap space. A superior approach would be to pick specific stocks, but that requires a higher amount of effort and time.

5 comments:

PaxEtBonum said...

Rohit,

Have been following your blog for a while with great interest.

A query - how did you generate the above two charts?

One big gripe I have about Indian stock investing is the lack of good websites like Yahoo! Finance which list comprehensive information about a wide universe of companies. Information like historical P/E's of Indian companies is really hard to come by. Any ideas where you can find this?

Rohit Chauhan said...

you can use moneycontrol.com to get fundamental data
i am not sure if historical pe's are easily available.
i have generated the above chart for the nseindia website

PaxEtBonum said...

Thanks, Rohit. Any ideas for websites where you can run stock screens? I use equitymaster.com but their data on ROE etc. is about a year old.

Rohit Chauhan said...

icici direct.com is a good place to start

Raj Gopal Vuppala said...

Hi Rohit,
I would appreciate if you could post your views here about risks associated with midcaps compared to largecaps.

Risks: Midcap Funds vs Largecap Funds

Thanks,
Raj