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

4 Aug 2024 , 09:25 PM

DID MID-CAPS REALLY CREATE ALPHA IN JULY 2024?

After a tough June, mid-caps had some relief in the month of July, although most of the positive action was focused on large cap stocks. 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 July. Did mid-caps really create alpha in the Nifty journey to 25,000 during July 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 in the Nifty’s journey to 25,000 during July 2024? If the Nifty has given beta returns, it is the mid-cap index that provides the alpha. 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 3.90% returns, which is lower than the returns of over 6% in the previous month, when the Nifty had journeyed to 24,000 post the formation of the NDA coalition government. At the same time, there are 13 companies giving more than 15% returns in a month and 25 mid-cap companies delivering more than 10% in the month of July 2024.
• If you look at 1-year returns, Nifty Mid-Cap 100 gave 55.01% returns, nearly twice the returns given by the Nifty in the same period. There were 17 midcaps that gave more than 100% returns in last one year, while 46 companies gave over 50% returns. A total of 66 mid-cap companies beat the Nifty returns. Even if you had selected a mid-cap stock at random, there was a 69% probability that you would have beaten Nifty returns.
• The Mid-cap index has bounced 56.98% from the lows of the year and it is about 1.35% short of the 52-week high. As far as the index is concerned, it is resilient but is the swing factor favourable? Clearly, the Nifty index is much closer to its highs; showing a stronger swing factor than mid-caps; while both indices have score high on the resilience factor.

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 3.90%. 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 64 stocks gave positive returns while 32 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
RVNL	595.10	43.49%	376.02%	647.00	121.75	388.79%	8.02%
SUZLON	68.35	28.43%	252.23%	70.99	17.70	286.16%	3.72%
TORNTPOWER	1,842.65	25.46%	169.59%	1,908.00	621.50	196.48%	3.43%
LUPIN	1,957.00	20.87%	97.67%	1,959.50	975.00	100.72%	0.13%
PAYTM	498.00	20.64%	-36.88%	998.30	310.00	60.65%	50.12%
IDBI	100.08	18.51%	58.87%	107.90	57.95	72.70%	7.25%
AUROPHARMA	1,438.05	18.24%	75.06%	1,441.00	805.65	78.50%	0.20%
HINDPETRO	391.80	18.14%	37.31%	406.60	159.47	145.69%	3.64%
DEEPAKNTR	3,099.00	18.08%	50.99%	3,169.00	1,921.85	61.25%	2.21%
GLAND	2,121.00	16.80%	62.91%	2,194.00	1,265.65	67.58%	3.33%
MAZDOCK	5,116.00	16.24%	174.64%	5,860.00	1,714.05	198.47%	12.70%
SYNGENE	826.85	15.75%	2.77%	860.25	607.65	36.07%	3.88%
PIIND	4,425.95	15.65%	20.56%	4,467.05	3,220.00	37.45%	0.92%
IPCALAB	1,291.45	14.94%	44.59%	1,374.60	847.30	52.42%	6.05%
MPHASIS	2,855.00	14.43%	24.42%	3,080.95	2,069.10	37.98%	7.33%

Data Source: NSE

What are the sectors showing positive momentum in last one month. Momentum appears to be mixed, although pharma appears to have dominated the leaders with 6 out of the 15 names being pharma stocks. Among others stories, PSUs contributed 4 players to the top-15. There were stock-specific stories like Paytm on its revival plan and IDBI Bank on disinvestment hopes. A toral of 5 out of the 96 stocks evaluated gave more than 20%, while 25 stocks in the Nifty Mid-cap 100 index gained more than 10%.

What about the laggards in the Nifty Mid-Cap 100 index on one-month returns? The laggards were largely news driven. The bottom performers of the month like Poonawalla Fincorp, Lodha, Supreme Industries, and ACC have been under pressure for some time while Bharat Dynamics was one of the few defence stocks to underperform. The top 10 mid-cap stocks generated average returns of 22.87% for the month while the top 20 stocks generated average returns of 18.58%. The bottom 10 stocks contracted -10.52%.

HOW MID CAP STOCKS PERFORM ON 1-YEAR RETURNS?

The fundamental story of mid-caps is better captured by 1-year returns. The Nifty Mid-Cap 100 index saw annual returns of 55.01% for last one year. Out of the 96 stocks in the Nifty Mid-Cap 100 index with full data available, 85 stocks gave positive returns and only 10 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	595.10	43.49%	376.02%	647.00	121.75	388.79%	8.02%
SUZLON	68.35	28.43%	252.23%	70.99	17.70	286.16%	3.72%
KALYANKJIL	566.10	13.51%	227.27%	633.60	162.65	248.05%	10.65%
BSE	2,640.00	2.69%	213.93%	3,264.70	804.00	228.36%	19.13%
PRESTIGE	1,754.80	-4.62%	202.18%	2,074.80	543.00	223.17%	15.42%
BHEL	308.60	2.02%	194.65%	335.35	94.80	225.53%	7.98%
DIXON	11,700.00	-6.23%	182.20%	12,879.00	4,065.00	187.82%	9.15%
OFSS	10,900.00	7.03%	181.94%	11,443.60	3,795.30	187.20%	4.75%
MAZDOCK	5,116.00	16.24%	174.64%	5,860.00	1,714.05	198.47%	12.70%
TORNTPOWER	1,842.65	25.46%	169.59%	1,908.00	621.50	196.48%	3.43%
SJVN	146.49	11.18%	157.26%	170.50	52.75	177.71%	14.08%
INDUSTOWER	429.00	10.03%	146.83%	453.30	157.35	172.64%	5.36%
JSWENERGY	731.80	-3.01%	145.95%	752.00	286.00	155.87%	2.69%
OIL	598.95	-16.08%	118.31%	653.00	174.37	243.49%	8.28%
NMDC	243.00	-3.53%	107.73%	286.35	110.90	119.12%	15.14%

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 6 out of the 15 leaders being PSU stocks. This includes RVNL, BHEL, Mazagon Docks, SJVN, Oil India, and NMDC. OF 96 stocks evaluated in the Nifty Mid-Cap 100, a total of 17 stocks generated more than 100% returns. At the same time,  46 out of the 96 companies generated over 50% returns. A total of 72 out of the 96 companies yielded more than 20% returns. Even if you had selected a mid-cap index stock at random, there was 75% 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. Zee continues to be the big laggard after it has been facing serious problems on fund raising. Paytm may have recovered in the last one month, but the annual returns are still deep in the negative as an outcome of the RBI ban. Dalmia Bharat has been under pressure after guidance pressures and after losing the JPA capacity addition opportunity. In addition, there are number of small finance banks that find itself on the wrong side of the regulatory risk-o-meter.

RANKING MID-CAP STOCKS ON THE ANNUAL RESILIENCE FACTOR

We look at resilience in terms of the extent of bounce from the 52-week lows, which is a good approximation for resilience. For the Nifty Mid-Cap 100 index as a whole, the bounce from the low of the year was a healthy 56.98%. Out of the 96 stocks evaluated in the Nifty Mid-Cap 100 index, an amazing 28 stocks bounced more than 100% from the lows, while 64 stocks bounced more than 50% from the lows and a total of 86 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	595.10	43.49%	376.02%	647.00	121.75	388.79%	8.02%
PERSISTENT	4,794.95	6.68%	-0.27%	4,964.80	1,158.59	313.86%	3.42%
SUZLON	68.35	28.43%	252.23%	70.99	17.70	286.16%	3.72%
KALYANKJIL	566.10	13.51%	227.27%	633.60	162.65	248.05%	10.65%
OIL	598.95	-16.08%	118.31%	653.00	174.37	243.49%	8.28%
BSE	2,640.00	2.69%	213.93%	3,264.70	804.00	228.36%	19.13%
BHEL	308.60	2.02%	194.65%	335.35	94.80	225.53%	7.98%
PRESTIGE	1,754.80	-4.62%	202.18%	2,074.80	543.00	223.17%	15.42%
BDL	1,445.40	-10.22%	18.44%	1,794.70	450.00	221.20%	19.46%
MAZDOCK	5,116.00	16.24%	174.64%	5,860.00	1,714.05	198.47%	12.70%
TORNTPOWER	1,842.65	25.46%	169.59%	1,908.00	621.50	196.48%	3.43%
DIXON	11,700.00	-6.23%	182.20%	12,879.00	4,065.00	187.82%	9.15%
OFSS	10,900.00	7.03%	181.94%	11,443.60	3,795.30	187.20%	4.75%
SJVN	146.49	11.18%	157.26%	170.50	52.75	177.71%	14.08%
INDUSTOWER	429.00	10.03%	146.83%	453.30	157.35	172.64%	5.36%

Data Source: NSE

No prizes for guessing; as 6 out of the top 15 stocks in terms of resilience from the lows were PSU stocks. This syncs with 1-year returns. The PSUs with the best bounce include RNVL, Oil India, BHEL, Bharat Dynamics, Mazagon Docks, and SJVN. The non-PSU stocks in the top-10 list has a fairly eclectic mix of stocks from financial inclusion (BSE), jewellery (Kalyan Jewellers), realty (Prestige), IT (OFSS), green power (Suzlon), and outsourcing (Dixon). Mid-caps showed good resilience, especially under the tough operating conditions.

Let us look at the laggards in the mid-cap index; or the stocks that bounced the least from the lows. There were just 3 stocks out of the 96 stocks that bounced less than 10% from the lows )Tata Elxsi, Poonawala, and IDFC First Bank), while 10 stocks bounced less than 20% from the lows. The number of stocks close to the lows has reduced substantially compared to May 2024. Apart from the bottom-3; other laggards were standard suspects like Dalmia Bharat, APL Apollo, Zee, Delhivery, AU Bank, Tata Chemicals and Mankind Pharma.

HOW DID THE MID-CAPS RANK ON SWING FACTOR

The swing factor offers a 360-degree view of stock performance. Swing measures how close the stock price is to the 52-week highs. The closer the stock is to the 52-week high, the higher is the swing factor. The Mid-Cap 100 index is 1.35% short of the 52-week high; which shows predilection among investors to book profits at higher levels. Out of the 96 evaluated stocks in the Nifty Mid-Cap 100 index, 32 stocks are less than 5% away from their 52-week highs, while 59 stocks are less than 10% away. The swing factor has been less favourable for mid-cap stocks, compared to large caps. 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	1,957.00	20.87%	97.67%	1,959.50	975.00	100.72%	0.13%
AUROPHARMA	1,438.05	18.24%	75.06%	1,441.00	805.65	78.50%	0.20%
BALKRISIND	3,352.50	4.86%	32.58%	3,375.00	2,193.80	52.82%	0.67%
PIIND	4,425.95	15.65%	20.56%	4,467.05	3,220.00	37.45%	0.92%
JUBLFOOD	600.15	4.41%	22.48%	605.80	421.05	42.54%	0.93%
LALPATHLAB	3,118.00	9.76%	31.95%	3,150.00	1,943.70	60.42%	1.02%
VOLTAS	1,536.00	6.40%	92.71%	1,560.00	780.25	96.86%	1.54%
PAGEIND	42,000.00	7.60%	8.56%	42,885.00	33,070.05	27.00%	2.06%
GMRINFRA	101.50	4.00%	97.32%	103.75	50.25	101.99%	2.17%
DEEPAKNTR	3,099.00	18.08%	50.99%	3,169.00	1,921.85	61.25%	2.21%
SUNTV	887.85	14.39%	66.81%	907.95	519.05	71.05%	2.21%
FEDERALBNK	200.50	12.95%	48.59%	205.15	130.50	53.64%	2.27%
JSWENERGY	731.80	-3.01%	145.95%	752.00	286.00	155.87%	2.69%
HDFCAMC	4,177.00	1.78%	63.63%	4,296.40	2,371.55	76.13%	2.78%
MFSL	1,099.95	10.78%	36.14%	1,132.50	763.00	44.16%	2.87%

Data Source: NSE

What are the sectors that are showing the best swing in terms of proximity to their 52-week highs. Among the stock that are closest to their highs and having a favourable swing factor were stocks like Lupin, Aurobindo Pharma, Balkrishna Industries, PI Industries, Jubilant Foods, Dr Lal Path Labs etc. Pharma is, again, the dominant theme with 3 players in the top-15, which is similar to the trend shown by large caps, indicating that there is genuine short term traction in the pharma healthcare space. Stocks that are closest to their highs show positive swing and the likelihood of crossing above their 52-week highs. That is why this is a very important list for traders looking for a break out trade on the upside.

What is the story of the laggards in the Nifty 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, Poonawala, Dalmia Bharat, IDFC First Bank, Tata Elxsi, Lodha, etc Surprisingly, several PSU stocks that led in other lists don’t seem to figure in this list of leaders. That could be due to the fact that amidst the political uncertainty, it was these PSU and defence stocks that witnessed heavy profit booking at higher levels.

Here are some interesting thoughts on the mid-cap space. It is largely a sector-agnostic rally with the rallies being largely bottom-up in nature. It must be said that in the journey to 25,000, the large caps have done a more impressive job. That is not surprising, considering that investors do see elevated risk levels in mid-cap and small cap stocks at such elevated levels of the Nifty and the Sensex. But, there is one theme emerging from mid-caps that is similar to large caps. Watch out for the Pharma theme; that could be the big story!