This may be the right time to buy mid-cap shares. But proceed with caution.
After eroding investor wealth following a steep correction at the beginning of 2013, mid-cap stocks are again turning into preferred picks.
Many mid-cap companies had crashed 30-70% over the last three months to historical lows. Many of them are now attractive buys. Also, with markets peaking, people see greater growth potential for medium and small companies than the large ones. And better than expected fourth quarter earnings are expected to spur several of them.
However, analysts recommend caution while investing in mid-cap stocks. “Yes, several mid-caps are attractive. But all of them are not. Some infrastructure and construction stocks are still languishing,” said Apurva Shah, head of research at brokerage firm BNP Paribas.
“Mid-cap pharma companies, private sector banks and non-banking finance companies are doing well,” he added.
Daljeet Kohli, head of research, Emkay Global Securities said, “For large caps, there is relatively little headroom to grow further. Hence mid-caps are better options."
A recent report on mid-caps by broking firm Nirmal Bang says valuations of some of these companies are at historical lows. "From the long-term perspective, these could be attractive options, compared to their large cap peers," it said.
In fact, the uptick in mid-cap stocks has started reflecting on the performance of mid-cap schemes of mutual funds, too. In the past one month, many of those mutual fund schemes showed returns of 4-6% against 3-4% negative return for the three month-period.