Many of the mid cap stocks in our retirement portfolios for subscribers have hit record highs. We are comfortable with the valuations of the stocks in our portfolios but there are many stocks that could have run ahead of fundamentals in the recent mid cap rally. Click on the following link to know more about our Model Retirement Portfolio Performances –
12 Stock Retirement Model Portfolio Performance as on 31st January 2017
19 Stock Portfolio Performance as on 31st January 2017
The objective of the NIFTY Free Float Midcap 100 Index is to capture the movement and be a benchmark of the midcap segment of the market. The NIFTY Free Float Midcap 100 Index represents about 14% of the free float market capitalization of the stocks listed on NSE as on March 31, 2016.
The midcap index has outperformed the market by gaining 18% to reach a record high level of 16,225 in the month of February 2017 from a low of 13,762 in the month of December 2016 against a 11.3% gain in the benchmark index of Nifty. After the Budget the midcap index has rallied 5% as compared to a 2.8% rise in the Nifty index. The benchmark Nifty index which comprises of 50 stocks is still 350 points away from an all-time record high levels of 9119 recorded in the month of March 2015.
Bharat Financial Inclusion, Union Bank of India, Bajaj Finserv, Bajaj Finance, IDBI Bank, Dewan Housing Finance Corporation, Bank of India, DCB Bank, Jindal Steel and Power, Steel Authority of India, Hindustan Zinc and JSW Steel have rallied approximately 25% since the last week of December 2016. Adani Enterprises and Adani Power, Sun TV Network, Ramco Cement, DLF and Sintex Industries are among the stocks that surged more than 30% in the same time period. Bajaj Finserv, Biocon, Godrej Industries, Indraprastha Gas, Jubilant Life Sciences, Natco Pharma, Sun TV Network and Vakrangee hit their record highs on NSE on Monday (6th February 2017).
Total of 50 companies from the Nifty Midcap index have announced the results for the third quarter ended December 2016. They have posted an average 11.5% year-on-year growth in aggregate net profit to Rs 89.80 billion as against Rs.80.54 billion in the same quarter a year ago. Better than expected Q3FY17 results for some of the heavyweights in the midcap index along with positive sentiments percolating from the announcements made in the Union Budget 2017-18 has led to the rally. Indian Hotels which is one of the component of the midcap index rose 9% yesterday after the company’s Q3FY17 net profit jumped seven-fold to Rs.929.8 million.
The price to earnings ratio stands at 32 for the NSE Midcap 100 Index in the month of February 2017 as compared to a ratio of 22 in the month of February 2016. Valuations have become expensive as expectations have increased for higher returns in the near future due to favourable macroeconomic conditions. The price to Book value has also increased to 2.22 in the month of February 2017 from a value of 2.04 in the month of February 2016.
If the RBI decides to cut the interest rate in the monetary policy meeting to be held on the 8th of February 2017 it would give a fillip to the already run up stocks in the NSE Midcap Index. The valuations would then need to be justified by delivering quarterly results better than the market expectations otherwise it could result in a steeper correction than the recent sharp run up.
