Recap FY24 - Mid-Cap leaders and laggards on Dalal Street

4 Apr 2024 , 01:57 PM

DESPITE CHALLENGES, FY24 BELONGED TO MID-CAPS

In a year when the Nifty has given 30.71% returns, you can safely assume that the mid-cap index would have done better. In fact, they were not just better, but substantially better than expected. For FY24 as a whole, the Nifty Mid-Cap 100 generated returns of 61.46%. That is phenomenal, even if you factor in the reality that mid-caps are higher on the risk scale compared to the large cap stocks. The Nifty Mid-cap 100 index closed the year at 48,076 levels. That is a full 60.75% higher than the yearly lows and just about 3.75% short of the yearly highs. Even this divergence from the peak happened only in March. The month of March 2024 saw a correction in the Nifty Mid-Cap 100 index for several reasons.

Firstly, there were already concerns over valuations with the mid-cap index trading at well above 25X P/E valuations. This led to traders substantially booking losses on mid-caps as part of the tax farming effort. During the month of March 2024, SEBI warned mutual funds to go slow on mid-cap and small cap funds, while the regulator also cautioned the retail investors about overexposure to smaller stocks. Above all, SEBI had also imposed some regulations like additional special margins (ASM) on several smaller scrips as well as the need to bring in 100% margins upfront, to reduce the speculative content in the market. Despite these late headwinds, Nifty Mid-cap closed FY24 with stellar returns of 60.75%.

MOMENTUM STORY – HOW MID-CAPS PERFORMED IN MARCH 2024

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 -0.03%. Out of the 100 stocks in the Nifty Mid-Cap 100 index, 6 stocks were eliminated due to paucity of full year data. Of the remaining 64 stocks, only 39 stocks gave positive returns while 55 stocks gave negative returns in March 2024.

Stock Symbol	Market Price	1-Month Return	1-Year Return	52-week High	52-week Low	Bounce from Low	Distance to High
CGPOWER	537.00	26.10%	77.32%	556.40	283.25	89.59%	3.61%
TORNTPOWER	1,365.40	21.50%	156.10%	1,514.70	485.55	181.21%	10.93%
INDUSTOWER	291.30	19.01%	104.67%	292.75	135.80	114.51%	0.50%
OFSS	8,761.00	14.70%	171.40%	8,894.00	3,200.25	173.76%	1.52%
TATACHEM	1,082.95	14.49%	13.21%	1,349.00	921.65	17.50%	24.57%
DIXON	7,474.00	14.32%	167.73%	7,580.00	2,754.05	171.38%	1.42%
KALYANKJIL	433.70	13.03%	288.56%	439.00	100.95	329.62%	1.22%
CUMMINSIND	3,022.95	10.74%	83.32%	3,025.00	1,481.00	104.12%	0.07%
OBEROIRLTY	1,470.00	10.74%	78.47%	1,585.55	814.30	80.52%	7.86%
SAIL	134.35	10.27%	62.63%	150.00	77.60	73.13%	11.65%

Data Source: NSE

What are the sectors that are showing momentum over the last one month. The momentum clearly appears to be in favour of the power stocks. Some of the stocks that gave the best gains in March 2024 include CG Power, Torrent Power, Indus Towers, OFSS and Tata Chemicals. In the last one month, there were 2 stocks that gained more than 20%, while 11 stocks in the Nifty Mid-cap 100 index gained more than 10%. There was no clear sectoral bias in the top-10. However, if you look at the Top-20, you find a number of financials and electrical goods companies.

What about the laggards in the Nifty Mid-Cap 100 index on one-month returns? The laggards were largely news driven. The worse performers of the month were largely hit by the clampdown on mid-cap and small cap stocks. FACT, Coforge, and ZEE were the worst performers in March 2024 as the pressure on IT stocks spread to the smaller stocks too. The top 10 mid-cap stocks generated average returns of 15.49% for March  while the bottom 10 stocks generated negative returns of -11.22%.

1-YEAR RETURNS FOR FY24 – HOW DID MID-CAPS FARE?

If the momentum story above captured the short term moves, the fundamental picture is better captured by 1-year returns. The Nifty Mid-Cap 100 index saw annual returns of 61.46% for FY24. Out of the 94 stocks in the Nifty Mid-Cap 100 index with full data available, 86 stocks gave positive returns and only 8 stocks gave negative returns in the last one year.

Stock Symbol	Market Price	1-Month Return	1-Year Return	52-week High	52-week Low	Bounce from Low	Distance to High
BSE	2,525.05	7.64%	505.00%	2,598.95	406.20	521.63%	2.93%
KALYANKJIL	433.70	13.03%	288.56%	439.00	100.95	329.62%	1.22%
RVNL	252.20	-2.36%	277.18%	345.50	64.60	290.40%	36.99%
SJVN	121.60	3.01%	271.25%	170.50	30.55	298.04%	40.21%
BHEL	247.50	10.06%	251.78%	275.85	67.60	266.12%	11.45%
FACT	626.20	-15.20%	203.50%	908.00	192.00	226.15%	45.00%
PRESTIGE	1,175.00	-4.80%	192.06%	1,440.00	395.10	197.39%	22.55%
MAZDOCK	1,861.50	-11.82%	185.25%	2,492.00	620.30	200.10%	33.87%
OFSS	8,761.00	14.70%	171.40%	8,894.00	3,200.25	173.76%	1.52%
DIXON	7,474.00	14.32%	167.73%	7,580.00	2,754.05	171.38%	1.42%

Data Source: NSE

What are the sectors that are showing momentum over the last one month? PSUs as a theme still dominated the 1-year returns too. If you look at the top-10 stocks on 1-year returns in the mid-cap index, 5 out of the 10 are PSU stocks. This includes RVNL, SJVN, BHEL, FACT and Mazagon Dock Shipyards. Out of 94 stocks evaluated in the Nifty Mid-Cap 100, a total of 24 stocks in the Nifty-Mid-Cap 100 generated more than 100% returns. At the same time,  53 out of the 94 companies generated over 50% returns. A total of 77 out of the 94 companies yielded more than 20% returns, so even if you had selected a mid-cap index stock at random, there was 82% probability that it would better other asset class returns.

What is the story of the laggards in the Nifty Mid-Cap 100 index on one-year returns? The bottom 3 were purely news driven. UPL Ltd has been having internal management problems for some time now. Zee has been a laggard after the deal with Sony broke down. However, the worst performer on the Nifty Mid-Cap 100 index was Paytm (not surprisingly), which took a sharp knock after the RBI panned the banking license of Paytm Payments Bank. With the current restrictions in place, Paytm is likely to struggle to get to profitability. Other laggards were from mid-cap banks and IT companies.

HOW RESILIENT WERE THE MID-CAP STOCKS IN FY24?

We look at resilience in terms of the extent of bounce from the lows of the year, which comes fairly close as a proxy. For the Nifty Mid-Cap 100 index as a whole, the bounce from the low of the year was a full 60.75%. Out of the 94 stocks in the Nifty Mid-Cap 100 index, an amazing 30 stocks bounced more than 100% from the lows, while 63 stocks bounced more than 50% from the lows and a total of 84 stocks showed a bounce of at least 20% from the lows of the year.

Stock Symbol	Market Price	1-Month Return	1-Year Return	52-week High	52-week Low	Bounce from Low	Distance to High
BSE	2,525.05	7.64%	505.00%	2,598.95	406.20	521.63%	2.93%
KALYANKJIL	433.70	13.03%	288.56%	439.00	100.95	329.62%	1.22%
SJVN	121.60	3.01%	271.25%	170.50	30.55	298.04%	40.21%
RVNL	252.20	-2.36%	277.18%	345.50	64.60	290.40%	36.99%
BHEL	247.50	10.06%	251.78%	275.85	67.60	266.12%	11.45%
FACT	626.20	-15.20%	203.50%	908.00	192.00	226.15%	45.00%
MAZDOCK	1,861.50	-11.82%	185.25%	2,492.00	620.30	200.10%	33.87%
PRESTIGE	1,175.00	-4.80%	192.06%	1,440.00	395.10	197.39%	22.55%
LODHA	1,128.00	-1.37%	31.08%	1,277.90	388.50	190.35%	13.29%
TORNTPOWER	1,365.40	21.50%	156.10%	1,514.70	485.55	181.21%	10.93%

Data Source: NSE

No prizes for guessing; as 5 out of the top 10 stocks in terms of resilience from the lows were the PSU stocks and they were the same 5 PSU stocks that also featured in the fundamental ranking list. This underlines the inherent strength and investor interest in these PSU mid-cap stocks. The non-PSU stocks in the top-10 list has 2 realty companies; Prestige Estates and Macrotech (Lodha). The top stock which bounced more than 6 times from the low was BSE Ltd. The exchange stock showed a bounce on the back of increased financialization of savings. BSE with its investor base of over 14 Crore is seen as the best proxy for this trend towards financialization of savings in India.

Let us briefly look at the laggards in the mid-cap index; or the stocks that bounced the least from the lows of the year. There were a total 6 stocks out of the 94 stocks that bounced less than 10% from the lows, while 10 stocks bounced less than 20% from the lows. These are stocks are still near to their lows, which is a signal of underlying weakness in the midst of a bull market in FY24. Some of the laggards were the standard suspects like Zee Entertainment Ltd, UPL, AU Bank, Bandhan Bank, Jubilant Foods and Dalmia Bharat.

WHICH WERE THE MID-CAP SWING STOCKS IN FY24

Let us finally look at the top ranked swing stocks for FY24. We utilize the proximity to the 52-week high as the proxy for the swing factor. The closer the stock is to the 52-week high, the higher is the swing factor. The Nifty Mid-Cap 100 index itself is just about 3.55% short of the 52-week high. Actually, this data is also slightly skewed because there was a sharp sell-off in several mid-cap stocks in the month of March as part of tax farming. Otherwise, the index level would have been much closer to the 52-week high. Out of the 94 stocks in the Nifty Mid-Cap 100 index, 16 stocks are less than 5% away from their 52-week highs, while a total of 27 stocks are less than 10% away from their 52-week high levels.

Stock Symbol	Market Price	1-Month Return	1-Year Return	52-week High	52-week Low	Bounce from Low	Distance to High
CUMMINSIND	3,022.95	10.74%	83.32%	3,025.00	1,481.00	104.12%	0.07%
INDUSTOWER	291.30	19.01%	104.67%	292.75	135.80	114.51%	0.50%
KALYANKJIL	433.70	13.03%	288.56%	439.00	100.95	329.62%	1.22%
DIXON	7,474.00	14.32%	167.73%	7,580.00	2,754.05	171.38%	1.42%
OFSS	8,761.00	14.70%	171.40%	8,894.00	3,200.25	173.76%	1.52%
INDHOTEL	593.00	3.55%	85.28%	602.75	302.10	96.29%	1.64%
TATACOMM	2,005.00	5.09%	63.56%	2,038.40	1,172.00	71.08%	1.67%
IPCALAB	1,241.10	4.13%	57.34%	1,263.95	669.80	85.29%	1.84%
JSWENERGY	527.05	4.20%	123.49%	537.95	221.00	138.48%	2.07%
SONACOMS	702.00	6.83%	70.21%	718.85	401.10	75.02%	2.40%

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 swing factor were stocks like Cummins India, Indus Towers, Kalyan Jewellers, Dixon, OFSS and India hotels. This list got slightly skewed in the last 1 month after several stocks took deep cuts in the month of March amidst tax farming. However, aggressive tax farming is also an indication that investors are taking losses as they expect the stock to bounce back. That is positive.

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 stocks like Paytm, Zee Entertainment, UPL and Bandhan Bank for obvious reasons that we have already seen. Surprisingly, several PSU stocks that led in other lists find themselves at the bottom of this list due to the late sell-off in the PSU stocks. This includes PSU stocks like FACT, SJVN and RVNL.

WHERE IS THE MID-CAP CONVICTION VISIBLE ACROSS PARAMETERS?

One way to check the conviction of outperformance, is to look at the stock that have outperformed on multiple parameters. Here we look at common factors across momentum, fundamentals, resilience, and swing. Here are the quick takeaways.

• In terms of the thematic plays, it is the industrials and realty stocks that have shown the best traction across parameters.
• PSU stocks have been solid performers across 1-year returns and resilience, but the swing has been impacted for the PSU stocks due to the tax farming in March.
• Finally, there are stocks like Zee Entertainment, Paytm, UPL and AU Bank which shows substantiated weakness across multiple parameters. These are the stocks where there was a lot of caution in FY24.

Unlike the large caps, there are not too many identifiable themes in mid-caps, although we have seen some bias in favour of industrials and realty stocks. For FY25, this index will still depend on how the PSU stocks bounce back.