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Did mid-caps generate alpha in September 2024?

7 Oct 2024 , 04:06 AM

DID MID-CAPS GENERATE ALPHA IN SEPTEMBER 2024?

The mid-caps have been going through spasmodic cycles in the last few months. If June and July flattered on returns, the month of August was relatively more cautious; as was the case with September 2024. The mid-cap space had several challenge along the way. The US unemployment scare in August was the first signal that mid-cap and small caps could struggle if the global demand slackened. At the same time, the regulator was also coming down hard on the smaller stocks, expressing concerns over the rapid rally in these stocks. As a result, many mutual funds either decided to put off mid-cap NFO plans and even put restrictions on inflows into mid-cap funds. All these factors has an impact on the mid-cap stocks and they obviously faltered in their core alpha objective.

In the month of September, the mid-caps did give positive returns, but it was much lower than the Nifty, indicating that the markets were gravitating towards the large caps. The mid-caps tend to be relatively more vulnerable to crude oil prices and the rupee/dollar equation; and both these factors came under pressure in September due to the worsening geopolitical situation in West Asia. 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 1.46% in September, compared to 0.50% returns in August; which is some recovery for sure. The geopolitical risks actually depressed the mid-caps in the second half of the month. At the same time, there are 9 companies giving more than 10% returns in the month, and 32 mid-cap companies delivering more than 5% in September 2024.
  • If you look at 1-year returns, Nifty Mid-Cap 100 gave 48.39% returns, nearly 50% higher than the Nifty in the same period. There were 16 midcaps that gave more than 100% returns in last one year, while 40 companies gave over 50% returns. A total of 54 mid-cap companies beat the Nifty returns. Even if you had selected a mid-cap stock at random, there was a 58.1% probability that you would have beaten Nifty returns.
  • Let us look at the Mid-cap index in terms of resilience shown by the index. The index has bounced 59.75% from the lows of the year and it is about 1.27% short of the 52-week high. Compared to the previous month of August, the swing has moved away from the mid-cap index largely due to stiff resistance faced at higher levels. As far as the index is concerned, it has still shown a lot of resilience, but the swing factor is a matter of concern, which is more due to the resistance it has faced at higher levels in the month? The moral of the story is that alpha hunting is still elusive in the markets as investors are preferring the safety and security of large caps.

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

MID-CAPS ON 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 1.46%. Out of the 100 stocks in the Nifty Mid-Cap 100 index, 7 stocks were eliminated due to paucity of full year data. Of the remaining 93 stocks, 58 stocks gave positive returns while 35 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
BSE 3,680.00 30.08% 183.88% 4,200.00 1,252.65 193.78% 12.38%
KALYANKJIL 729.35 18.70% 220.92% 786.25 220.55 230.70% 7.24%
MAXHEALTH 995.00 14.30% 73.73% 1,118.00 538.65 84.72% 11.00%
ABFRL 348.90 12.03% 62.99% 364.40 198.75 75.55% 4.25%
APOLLOTYRE 547.90 11.15% 48.61% 584.90 365.00 50.11% 6.33%
MFSL 1,185.60 10.81% 30.92% 1,212.85 854.25 38.79% 2.25%
ESCORTS 4,255.00 10.77% 34.02% 4,420.00 2,648.40 60.66% 3.73%
PAYTM 691.25 10.68% -19.75% 998.30 310.00 122.98% 30.76%
COFORGE 7,003.00 10.60% 37.46% 7,149.00 4,287.25 63.34% 2.04%
NMDC 244.21 9.99% 65.54% 286.35 140.65 73.63% 14.72%
CGPOWER 760.00 9.04% 71.65% 814.40 359.20 111.58% 6.68%
TATACOMM 2,135.00 8.81% 10.45% 2,168.00 1,543.40 38.33% 1.52%
SONACOMS 739.00 8.79% 27.43% 768.65 488.10 51.40% 3.86%
GODREJPROP 3,165.15 8.65% 103.39% 3,402.70 1,532.00 106.60% 6.98%
APLAPOLLO 1,588.00 8.35% -2.51% 1,788.35 1,305.00 21.69% 11.20%

Data Source: NSE

What are the sectors showing positive momentum in last one month. Momentum appears to be mixed, although several financial services companies have appeared in this list. Among others stories, the sectoral and thematic spread was fairly even. A total of 9 out of the 93 stocks evaluated gave more than 10%, returns in September 2024, indicating that a large number of 49 stocks have single digit positive returns in the month. Clearly, it is a classic sign of the lack of conviction in mid-cap as a theme, with returns being quite tentative.

What about the laggards in the Nifty Mid-Cap 100 index on one-month returns? The laggards were largely stock-specific, although government the sharp fall in crude prices in the second half of September led to companies like Oil India, MRPL, and Petronet figuring at the bottom. A total of 8 out of 93 stocks fell more than 10% in September 2024 while 17 stocks fell more than 5%. The top 10 mid-cap stocks generated average returns of 13.91% for the month while the top 20 stocks generated average returns of 11.08%. The bottom 10 stocks contracted -14.64%. The performance has been largely contrasting in mid-caps, with wide variations.

MID CAPS 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 48.39% for last one year. Out of the 93 stocks in the Nifty Mid-Cap 100 index with full data available, 85 stocks gave positive returns and only 8 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
KALYANKJIL 729.35 18.70% 220.92% 786.25 220.55 230.70% 7.24%
RVNL 533.50 -12.50% 213.63% 647.00 142.15 275.31% 17.54%
SUZLON 80.24 5.55% 210.27% 86.04 25.45 215.28% 6.74%
PRESTIGE 1,840.00 1.77% 206.21% 2,074.80 592.10 210.76% 11.32%
BSE 3,680.00 30.08% 183.88% 4,200.00 1,252.65 193.78% 12.38%
OFSS 11,450.00 4.28% 178.74% 12,619.00 3,868.80 195.96% 9.26%
HUDCO 239.85 -13.84% 163.40% 353.70 70.50 240.21% 32.19%
DIXON 13,800.00 4.80% 160.96% 14,498.00 5,028.00 174.46% 4.81%
TORNTPOWER 1,874.15 7.71% 154.30% 1,969.90 691.95 170.85% 4.86%
SOLARINDS 11,469.50 7.46% 139.21% 13,298.00 4,660.10 146.12% 13.75%
CUMMINSIND 3,814.00 1.64% 124.37% 4,171.90 1,653.30 130.69% 8.58%
VOLTAS 1,850.00 5.82% 113.73% 1,944.90 806.70 129.33% 4.88%
POLICYBZR 1,608.45 -8.59% 111.69% 1,966.50 661.30 143.23% 18.21%
NLCINDIA 283.00 2.69% 109.34% 311.80 116.80 142.29% 9.24%
INDUSTOWER 390.05 -14.38% 104.77% 460.35 166.70 133.98% 15.27%

Data Source: NSE

Are there are any sectoral themes in the mid-caps in terms of one-year returns? PSUs as a theme is down to just 3 in the top 15, including RVNL, HUDCO and NLC India. The remaining are a diverse list including Kalyan Jewellers in Retail, Suzlon in alternate power, Prestige in realty, and BSE in financial intermediation. Of the 93 stocks evaluated in the Nifty Mid-Cap 100, a total of 16 stocks generated more than 100% returns. At the same time,  40 out of the 93 companies generated over 50% returns. A total of 71 out of the 93 companies yielded more than 20% returns. Even if you had selected a mid-cap index stock at random, there was 76.3% 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, but there is a predominance of financials. IDFC First Bank, Bandhan Bank, Paytm, SBI Cards and Bank of India find themselves in the bottom 10 on 1-year returns. There are others like Persistent that has struggled as has Vodafone Idea due to issues related to meeting its funding needs. UPL continues to be in the bottom list due to the challenges in speciality chemicals and the management related challenges at UPL.

MID-CAP STOCKS ON ANNUAL RESILIENCE FACTOR

It is hard to define resilience, but as a reasonable proxy, we have used 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 59.75%. Out of the 93 stocks evaluated in the Nifty Mid-Cap 100 index, an incredible 28 stocks bounced more than 100% from the lows, while 57 stocks bounced more than 50% from the lows and 85 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
PERSISTENT 5,454.45 5.41% -5.97% 5,585.95 1,394.20 291.22% 2.35%
RVNL 533.50 -12.50% 213.63% 647.00 142.15 275.31% 17.54%
HUDCO 239.85 -13.84% 163.40% 353.70 70.50 240.21% 32.19%
KALYANKJIL 729.35 18.70% 220.92% 786.25 220.55 230.70% 7.24%
SUZLON 80.24 5.55% 210.27% 86.04 25.45 215.28% 6.74%
PRESTIGE 1,840.00 1.77% 206.21% 2,074.80 592.10 210.76% 11.32%
OIL 580.00 -21.64% 94.29% 767.90 192.50 201.30% 24.47%
OFSS 11,450.00 4.28% 178.74% 12,619.00 3,868.80 195.96% 9.26%
BSE 3,680.00 30.08% 183.88% 4,200.00 1,252.65 193.78% 12.38%
HINDPETRO 440.80 5.13% 72.80% 457.15 159.47 176.42% 3.58%
DIXON 13,800.00 4.80% 160.96% 14,498.00 5,028.00 174.46% 4.81%
TORNTPOWER 1,874.15 7.71% 154.30% 1,969.90 691.95 170.85% 4.86%
BDL 1,155.45 -10.97% 12.48% 1,794.70 450.00 156.77% 35.62%
SOLARINDS 11,469.50 7.46% 139.21% 13,298.00 4,660.10 146.12% 13.75%
POLICYBZR 1,608.45 -8.59% 111.69% 1,966.50 661.30 143.23% 18.21%

Data Source: NSE

On the resilience factor, 5 out of the top 15 stocks in terms of bounce from the lows are PSU stocks and 4 are digital stocks. This syncs with 1-year return criteria. The PSUs with the best bounce include RVNL, HUDCO, Oil India, HPCL, and Bharat Dynamics. Digital stocks included Persistent, OFSS, Dixon, and Policybazaar. The other themes were Power (Suzlon, Torrent Power), financial inclusion (BSE), jewellery (Kalyan), and realty (Prestige). Mid-caps showed solid 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 were just 2 stocks (IDFC First Bank and Vodafone Idea ) that bounced less than 10%, while 8 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. IDFC First Bank was under pressure due to its ongoing merger with IDFC Ltd and Vodafone Idea has been stressed due to funding related issues. Other laggards in terms of resilience includes; Astral, Tata Chemicals, Poonawala Fincorp, Bandhan Bank, SRF, SBI Cards, Delhivery and Tata Elxsi.

MID-CAPS ON ANNUAL 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 better is the swing factor. The Mid-Cap 100 index is 1.27% short of the 52-week high; which shows that there has been some deterioration in the swing factor. Out of the 93 evaluated stocks in the Nifty Mid-Cap 100 index, 24 stocks are less than 5% away from their 52-week highs, while 48 stocks are less than 10% away. The swing factor has come under pressure in September due to persistent selling at higher levels. 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
M&MFIN 340.35 7.63% 12.28% 343.00 237.35 43.40% 0.77%
TATACOMM 2,135.00 8.81% 10.45% 2,168.00 1,543.40 38.33% 1.52%
COLPAL 3,814.50 4.51% 89.70% 3,890.00 1,968.10 93.82% 1.94%
COFORGE 7,003.00 10.60% 37.46% 7,149.00 4,287.25 63.34% 2.04%
IGL 558.00 1.04% 22.80% 570.35 375.70 48.52% 2.17%
MFSL 1,185.60 10.81% 30.92% 1,212.85 854.25 38.79% 2.25%
PERSISTENT 5,454.45 5.41% -5.97% 5,585.95 1,394.20 291.22% 2.35%
MUTHOOTFIN 2,029.40 3.36% 62.29% 2,078.75 1,182.35 71.64% 2.37%
MARICO 695.00 7.46% 23.81% 713.50 486.30 42.92% 2.59%
PAGEIND 42,899.95 0.90% 10.07% 44,100.00 33,070.05 29.72% 2.72%
PIIND 4,670.00 3.57% 34.83% 4,804.05 3,220.00 45.03% 2.79%
HINDPETRO 440.80 5.13% 72.80% 457.15 159.47 176.42% 3.58%
UPL 612.00 2.47% -0.50% 634.90 447.80 36.67% 3.61%
ESCORTS 4,255.00 10.77% 34.02% 4,420.00 2,648.40 60.66% 3.73%
SONACOMS 739.00 8.79% 27.43% 768.65 488.10 51.40% 3.86%

Data Source: NSE

Are there any sectoral trends in the stocks with the best swing in their favour among the mid-caps? Last month, the swing list was dominated by healthcare stocks, but this time there is not a single healthcare stock in the list. There are 3 financials (M&M Finance, MFSL, Muthoot Finance); 3 FMCG plays (Colgate, Marico, Page Industries); and 3 technology plays (TCOM, Coforge, Persistent). The others are largely dispersed across various sectors. The swing factor gives us a good picture of which way the investment winds are blowing, and this time mid-cap healthcare appears to have been replaced by mid-cap consumer 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 Vodafone Idea, MRPL, Bharat Dynamics, Hindustan Zinc, Yes Bank, IOB, Paytm, Bank of India and Mazagon Docks. Clearly, the pressure at higher levels is on financials and on defence stocks.

Here are some interesting thoughts on the mid-cap space. There appears to be some interest coming back into financial services, but most banks are at the bottom. Broadly, the story seems to favour consumer plays, in much the same way as we have seen the trend in large caps. The market wisdom appears to be that, “When in doubt, bet on the consumer.”

Related Tags

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