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Did mid-caps create alpha in the August 2024 rally?

9 Sep 2024 , 09:34 AM

DID MID-CAPS ACTUALLY CREATE ALPHA IN AUGUST 2024?

If June and July flattered on returns, the month of August 2024 was relatively more cautious. It began with the US labour scare and was further compounded by the lower than expected real GDP growth in India. However, while the other macros were positive, although the Indian rupee was under a lot of pressure in the month of August 2024. In the last few months, mid-cap stocks had to bear the brunt of persistent selling by mutual funds, stiff valuations, and a sharp clampdown by SEBI. Mid-cap themes like IT, PSUs and defence came in for heavy volatility in the month of May, June, and July 2024. Did mid-caps really create alpha as the Nifty settled above 25,000 levels during August 2024. We will find out as we go along, but first a look at the mid-cap macro picture.

What has been the mid-cap story as the Nifty held above 25,000 during August 2024? The Mid-cap underperformed the Nifty 50 index in August 2024 by nearly 64 bps, and this can be largely attributed to the heavy flows from FPIs and domestic institutions into the large caps. Here are some interesting takeaways from the analysis of the mid-cap index in last 1 month and 1 year.

  • If you look at returns over a 1-month period, the Nifty Mid-Cap 100 index has given just 0.50% returns, which is lower than the returns of the last two months. The tax changes and the rupee weakness have hit the mid-cap stocks the most. At the same time, there are 10 companies giving more than 10% returns in the month 26 mid-cap companies delivering more than 5% in the month of August 2024.
  • If you look at 1-year returns, Nifty Mid-Cap 100 gave 51.56% returns, nearly twice the returns given by the Nifty in the same period. There were 19 midcaps that gave more than 100% returns in last one year, while 41 companies gave over 50% returns. A total of 58 mid-cap companies beat the Nifty returns. Even if you had selected a mid-cap stock at random, there was a 60.4% probability that you would have beaten Nifty returns.
  • The Mid-cap index has bounced 57.44% from the lows of the year and it is about 0.31% short of the 52-week high. As far as the index is concerned, it is resilient and even as returns have been subdued, there is no aggressive selling at higher levels; showing greater level of investor confidence? In fact, the Nifty Mid-cap index has held much closer to its yearly peak levels in the month of August 2024.

Let us first look at how the mid-caps performed in terms of 1-month returns.

HOW MID-CAPS PERFORMED ONE 1-MONTH MOMENTUM RETURNS

Let us start with the momentum story of Nifty Mid-Cap 100 Index using 1-month returns as the proxy. For the Nifty Mid-Cap 100 index as a whole, monthly returns were 0.50%. Out of the 100 stocks in the Nifty Mid-Cap 100 index, 4 stocks were eliminated due to paucity of full year data. Of the remaining 96 stocks, only 40 stocks gave positive returns while 56 stocks gave negative returns in the last one month. Here is a list of the 15 top performers.

Stock
Symbol
Market Price 1-Month Return 1-Year Return 52-week High 52-week Low Bounce from Low Distance to High
OIL 725.50 28.30% 171.33% 767.90 180.33 302.32% 5.52%
PAYTM 624.90 25.83% -27.17% 998.30 310.00 101.58% 37.40%
MANKIND 2,475.00 22.66% 37.99% 2,506.10 1,683.05 47.05% 1.24%
POLICYBZR 1,750.00 21.97% 128.78% 1,849.90 661.30 164.63% 5.40%
LUPIN 2,247.95 17.17% 104.05% 2,256.70 1,087.35 106.74% 0.39%
ALKEM 6,155.00 16.21% 69.38% 6,199.90 3,447.00 78.56% 0.72%
TATAELXSI 7,965.00 14.55% 10.40% 9,200.00 6,411.20 24.24% 13.42%
VOLTAS 1,754.80 13.40% 100.44% 1,818.15 806.70 117.53% 3.48%
BSE 2,840.00 10.80% 166.54% 3,264.70 908.45 212.62% 13.01%
LALPATHLAB 3,417.00 10.57% 57.06% 3,459.40 1,943.70 75.80% 1.23%
FORTIS 553.80 9.94% 66.38% 563.00 313.80 76.48% 1.63%
LTTS 5,715.00 9.59% 29.79% 6,000.00 4,111.00 39.02% 4.75%
AUROPHARMA 1,568.05 9.43% 89.08% 1,580.60 815.80 92.21% 0.79%
SUZLON 75.70 9.31% 208.92% 84.29 21.70 248.85% 10.19%
DIXON 12,930.95 8.79% 163.22% 13,639.80 4,733.45 173.18% 5.20%

Data Source: NSE

What are the sectors showing positive momentum in last one month. Momentum appears to be mixed, although healthcare and digital appear to have dominated the leaders with 9 out of the 15 names belong to these two segments. Among others stories, the sectoral and thematic spread was fairly even. A total of 4 out of the 96 stocks evaluated gave more than 20%, returns in August 2024, while 10 stocks in the Nifty Mid-cap 100 index gave double digit returns.

What about the laggards in the Nifty Mid-Cap 100 index on one-month returns? The laggards were largely stock-specific, although government owned names like Mazagon Docks, Bharat Dynamics, and SJVN were among the laggards. A total of 12 out of 96 stocks fell more than 10% in the month while 34 stocks fell more than 5% in August 2024. The top 10 mid-cap stocks generated average returns of 18.15% for the month while the top 20 stocks generated average returns of 13.35%. The bottom 10 stocks contracted -12.88%. The performance has been largely contrasting in mid-caps, with wide variations.

HOW MID CAP STOCKS PERFORMED ON 1-YEAR RETURNS?

The structural story of mid-caps is better captured by 1-year returns. The Nifty Mid-Cap 100 index saw annual returns of 51.56% for last one year. Out of the 96 stocks in the Nifty Mid-Cap 100 index with full data available, 84 stocks gave positive returns and only 12 stocks gave negative returns in the last one year. Here are the top-15 on 1-year returns.

Stock
Symbol
Market Price 1-Month Return 1-Year Return 52-week High 52-week Low Bounce from Low Distance to High
RVNL 603.55 0.98% 363.49% 647.00 128.05 371.34% 6.72%
SUZLON 75.70 9.31% 208.92% 84.29 21.70 248.85% 10.19%
PRESTIGE 1,790.00 -0.15% 181.48% 2,074.80 571.95 212.96% 13.73%
OIL 725.50 28.30% 171.33% 767.90 180.33 302.32% 5.52%
OFSS 10,799.95 -0.51% 167.41% 11,443.60 3,868.80 179.16% 5.62%
BSE 2,840.00 10.80% 166.54% 3,264.70 908.45 212.62% 13.01%
TORNTPOWER 1,754.25 -6.59% 165.41% 1,908.00 652.80 168.73% 8.06%
DIXON 12,930.95 8.79% 163.22% 13,639.80 4,733.45 173.18% 5.20%
INDUSTOWER 457.00 5.85% 161.70% 460.35 166.70 174.15% 0.73%
KALYANKJIL 613.05 6.18% 144.32% 633.60 202.80 202.29% 3.24%
BHEL 290.30 -7.84% 139.63% 335.35 113.50 155.77% 13.43%
MAZDOCK 4,225.00 -19.11% 129.40% 5,860.00 1,742.00 142.54% 27.90%
POLICYBZR 1,750.00 21.97% 128.78% 1,849.90 661.30 164.63% 5.40%
CUMMINSIND 3,740.00 -2.79% 119.28% 4,171.90 1,653.30 126.21% 10.35%
SJVN 133.05 -10.18% 112.85% 170.50 61.15 117.58% 21.96%

Data Source: NSE

Are there are any sectoral themes in the mid-caps in terms of one-year returns? PSUs as a theme still dominated 1-year returns; with 5 out of the 15 leaders being PSU stocks. This includes RVNL, Oil India, BHEL, Mazagon Docks, and SJVN. OF 96 stocks evaluated in the Nifty Mid-Cap 100, a total of 19 stocks generated more than 100% returns. At the same time,  41 out of the 96 companies generated over 50% returns. A total of 68 out of the 96 companies yielded more than 20% returns. Even if you had selected a mid-cap index stock at random, there was 71% probability that it would have bettered other asset class returns.

What is the story of the laggards in the Nifty Mid-Cap 100 index on one-year returns? The bottom list is largely news driven, with no sectoral theme; although some stocks have made it a habit of featuring in the bottom. Zee continues to be the big laggard although it had a brief respite with Sony and Zee arriving at a settlement. Paytm has recovered more than 50% in the last couple of months, but the damage has been large. Mid-sized banks like IDFC Bank, Bandhan Bank, and AU Bank have been under pressure in a competitive market.

RANKING MID-CAP STOCKS ON THE ANNUAL RESILIENCE FACTOR

Once again, we define resilience as the extent of bounce from the 52-week lows, which is a good approximation for resilience. These rankings broadly correspond with the 1-year return due to the longer term underlying theme. For the Nifty Mid-Cap 100 index, the bounce from the lows of the year was a healthy 57.44%. Out of the 96 stocks evaluated in the Nifty Mid-Cap 100 index, an incredible 24 stocks bounced more than 100% from the lows, while 56 stocks bounced more than 50% from the lows and 87 stocks showed a bounce of at least 20% from the lows of the year. Here are the top-15 on resilience.

Stock
Symbol
Market Price 1-Month Return 1-Year Return 52-week High 52-week Low Bounce from Low Distance to High
RVNL 603.55 0.98% 363.49% 647.00 128.05 371.34% 6.72%
OIL 725.50 28.30% 171.33% 767.90 180.33 302.32% 5.52%
PERSISTENT 5,148.00 7.01% -3.72% 5,264.95 1,280.05 302.17% 2.22%
SUZLON 75.70 9.31% 208.92% 84.29 21.70 248.85% 10.19%
PRESTIGE 1,790.00 -0.15% 181.48% 2,074.80 571.95 212.96% 13.73%
BSE 2,840.00 10.80% 166.54% 3,264.70 908.45 212.62% 13.01%
KALYANKJIL 613.05 6.18% 144.32% 633.60 202.80 202.29% 3.24%
BDL 1,305.00 -10.77% 15.67% 1,794.70 450.00 190.00% 27.29%
OFSS 10,799.95 -0.51% 167.41% 11,443.60 3,868.80 179.16% 5.62%
INDUSTOWER 457.00 5.85% 161.70% 460.35 166.70 174.15% 0.73%
DIXON 12,930.95 8.79% 163.22% 13,639.80 4,733.45 173.18% 5.20%
TORNTPOWER 1,754.25 -6.59% 165.41% 1,908.00 652.80 168.73% 8.06%
POLICYBZR 1,750.00 21.97% 128.78% 1,849.90 661.30 164.63% 5.40%
HINDPETRO 419.70 6.83% 68.90% 425.25 159.47 163.18% 1.31%
BHEL 290.30 -7.84% 139.63% 335.35 113.50 155.77% 13.43%

Data Source: NSE

On the resilience factor, 5 out of the top 15 stocks in terms of bounce from the lows were PSU stocks and 4 were digital stocks. This syncs with 1-year return criteria. The PSUs with the best bounce include RVNL, Oil India, Bharat Dynamics, Hindustan Petroleum, and BHEL. Digital stocks included Persistent, OFSS< Dixon, and Policybazaar. The other themes were Power (Suzlon, Torrent Power), financial inclusion (BSE), jewellery (Kalyan Jewellers), and realty (Prestige). Mid-caps showed good resilience, especially under the tough operating conditions and the rather challenging regulatory environment for mid-cap stocks.

Let us look at the laggards in the mid-cap index; or the stocks that bounced the least from the lows. There was just 1 stock (IDFC First Bank) that bounced less than 10%, while 9 stocks bounced less than 20% from the lows. The number of stocks close to the lows has reduced substantially compared to May 2024, as the level of confidence in markets improved. Some of the major laggards in terms of resilience includes stocks like; Astral, Zee Entertainment, APL Apollo, Dalmia Bharat, Poonawala, Tata Chemicals, Bandhan Bank, and Delhivery Ltd.

HOW DID MID-CAPS RANK ON SWING FACTOR

The swing factor shows how close to the yearly highs the stock is. It lists stocks that have not really faced selling pressure at higher levels, or where the buying has been strong enough to absorb the selling pressure. The closer the stock is to the 52-week high, the higher is the swing factor. The Mid-Cap 100 index is just 0.31% short of the 52-week high; which shows that most of the weak hands are out of the market. Out of the 96 evaluated stocks in the Nifty Mid-Cap 100 index, 26 stocks are less than 5% away from their 52-week highs, while 45 stocks are less than 10% away. The swing factor for the mid-caps has surely improved in August, over July and June 2024. Here are the top-15 performer on swing factor.

Stock
Symbol
Market Price 1-Month Return 1-Year Return 52-week High 52-week Low Bounce from Low Distance to High
LUPIN 2,247.95 17.17% 104.05% 2,256.70 1,087.35 106.74% 0.39%
ALKEM 6,155.00 16.21% 69.38% 6,199.90 3,447.00 78.56% 0.72%
INDUSTOWER 457.00 5.85% 161.70% 460.35 166.70 174.15% 0.73%
AUROPHARMA 1,568.05 9.43% 89.08% 1,580.60 815.80 92.21% 0.79%
LALPATHLAB 3,417.00 10.57% 57.06% 3,459.40 1,943.70 75.80% 1.23%
MANKIND 2,475.00 22.66% 37.99% 2,506.10 1,683.05 47.05% 1.24%
PAGEIND 42,368.05 0.29% 5.90% 42,922.00 33,070.05 28.12% 1.29%
HINDPETRO 419.70 6.83% 68.90% 425.25 159.47 163.18% 1.31%
SYNGENE 866.95 7.55% 12.23% 879.00 607.65 42.67% 1.37%
IGL 552.55 0.88% 18.20% 560.75 375.70 47.07% 1.46%
FORTIS 553.80 9.94% 66.38% 563.00 313.80 76.48% 1.63%
MPHASIS 3,093.60 7.34% 27.84% 3,153.00 2,069.10 49.51% 1.88%
PIIND 4,503.50 1.46% 23.90% 4,600.00 3,220.00 39.86% 2.10%
PERSISTENT 5,148.00 7.01% -3.72% 5,264.95 1,280.05 302.17% 2.22%
HDFCAMC 4,424.90 7.44% 75.12% 4,527.95 2,416.05 83.15% 2.28%

Data Source: NSE

Are there any sectoral trends in the stocks with the best swing in their favour among the mid-caps? Healthcare is the dominant theme with 7 out of 15 stocks with the best swing factor being healthcare stocks. These include; Lupin, Alkem, Aurobindo Pharma, Dr Lal Pathlabs, Mankind Pharma, Syngene, and Fortis Healthcare. There are two names from the technology space; Mphasis Ltd and Persistent System, but the rest of the stocks are really sprinkled across various sectors. The swing factor gives us the best picture of which way the investment winds are blowing, and this time, it is clearly favouring healthcare stocks.

What is the story of the laggards in the Nifty Mid-Cap 100 in terms of proximity to the 52-week highs. The story, once again, reads like a very familiar script. At the bottom of the heap, you have stocks like Zee, Paytm, Union Bank, Yes Bank, Mazagon Docks, Bharat Dynamics, IDFC FirstBank, BOI, and Poonawala. The list is almost like a repeat of the previous month. PSU stocks appear to have faced the maximum resistance at higher levels and that is evident from their virtual absence in the leaders list on swing factor.

Here are some interesting thoughts on the mid-cap space. It is largely a sector-agnostic rally but do not miss out one strong underlying trend. Like in large caps, even in the mid-caps, it is the healthcare industry that is seeing the best swing factor. That surely tells us something about the potential of the healthcare sector in an investment portfolio at this juncture. Despite the tough regulatory environment, mid-caps have delivered on their promise of alpha. The Indian investor appears to be regaining their fancy for mid-sized stocks, which is a normal hunting ground for these stocks. The coming months could be interesting!

Related Tags

  • BottomPerformers
  • LargeCaps
  • midcaps
  • nifty
  • sensex
  • smallcaps
  • TopPerformers
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