Where do you stand as far as midcap underperformance goes? The momentum is completely with the benchmarks at the moment?
Yes absolutely. The kind of rally that we saw in midcap last month and early August was tremendous. Everyone was making good returns in whatever they were buying. This party had to end with a correction. I am not saying that this has ended for good but a correction was required and now there is a chance where one can sit back and see which midcaps are the ones that will give you good long-term returns based on the valuation.
Midcaps will again perform but once this correction is over, midcaps for the next few quarters look good depending on how the economy is performing. I feel this is a long due correction and post this correction, we will see good quality midcaps again doing well.
Will midcaps remain out of favour?
No, what I am saying is that they were in favour, they are still in favour but correction was due because there was a huge rally. The kind of returns we got in midcaps in such a short period was also tremendous. So, some correction had to happen in midcaps that is what we are seeing right now. Post this correction, good quality midcaps should again start doing very well and they will give good returns over the next one year also.
Which are the midcaps that are standing out?
Sector wise, I am looking at the NBFC banking space where even after the Covid second wave, we did not see that kind of stress in the banking space. Post the second wave impact and once we are a little more comfortable and not so scared about the third wave, banking and even the NBFC space are good. There are good quality names there and even for larger ones like Kotak or the smaller midcaps like Federal Bank, this is a regional play or one can get in the the second rung PSBs after SBI. That would be
or .
These kinds of stocks should also start doing well because they are available at decent valuations and these banks have been providing for stress and are more than adequately provided. So, this is one sector I am looking at. In the NBFC space, it will be housing finance companies and then real estate. We have been positive on real estate and post the correction, some names like
or should start doing well. In the next 3-5 quarters, they can do very well and based on that, the infrastructure, engineering and capital goods sectors should also remain strong so one can look for opportunities there also.
In the August series, we have seen a very mixed performance from the pharmaceutical space and that is primarily because of earnings. Dr Reddy’s performed very differently from Sun Pharma but it is a defensive space. Going into a new series and going forward, how should one approach the pharma pack?
In the healthcare part, one should better look at something like Fortis. We have seen very good results coming in from Fortis and Max Healthcare. We have seen that bunched up because of Covid as there were a lot of health related issues which people had put on the backburner and they are also coming and the kind of footfalls that was the hospital which is ex of Covid, has also increased a lot.
Going ahead, hospitals should be a better bet and in the pharma space, the pure API play companies like Divi’s,
will continue to do well because of China plus one opportunity.
So if I have to play the healthcare part, I will go with API manufacturers and hospitals.
