Neal Bhai Reports — Focus on Quality and Growth Visibility in Midcaps — the midcap space as it is trading at a high premium over the benchmark indices. The brokerage said it prefers those stocks that offer quality and growth visibility.
The Nifty Midcap100 Index’s oneyear forward valuation premium over the Nifty is close to an alltime high at 12.6% and significantly above the 10-year average discount of 9.8%. CLSA said that the valuation premium has risen on the back of a 54% consensus earnings growth projection for NSE Midcap100 index in the current financial year compared to an estimate of 16% earnings growth for the Nifty in the same period.
“Our analysis suggests that such high growth is largely driven by a rebound in materialsenergy and PSU banks where sustainability of such high growth could be an issue. We advise a cautious approach with preference over quality and growth visibility,“ said CLSA in a note on Friday.
So far this year, the Nifty Free Float Midcap100 has gained 14.5%. In comparison, the Nifty has gained 10.5%. CLSA said Arvind, Crompton Consumer, Dr Lal PathLabs, IDFC Bank, InterGlobe Aviation and Sobha are its key picks among midcaps.
CLSA said the high valuation premium of the sector leaders versus peers in some sub-segments offers interesting switch opportunities.In the consumer electrical equipment space, it recommends a switch to Crompton Consumer from Havells India and in the media space, advises a shift to Inox Leisure from PVR. It also recommends a switch to Adani Transmission from JSW Energy . Among non-banking financial companies, CLSA recommends a switch from LIC Housing Finance to Indiabulls Housing Finance. — Gold Silver Reports