Midcaps ready to bounce back? Foreign funds spot an opportunity

For the greater part of the past two years, overseas funds had stuck only to the biggest names in the local business. But now they are beginning to put mid-cap stocks in their shopping carts, unwilling to miss out on the potential gains these companies offer.

Overseas funds had raised ownership in more than 60 midcaps in the September quarter. Abu Dhabi Investment Authority, Eastspring Investments, Euro Pacific Growth Fund, Fidelity, Government Pension Fund, Nomura and Norges Bank have continued this trend in the third quarter, buying more into HDFC Life, Apollo Tricoat Tubes, Yes Bank, Welspun Corp, Fortis Healthcare, Eris Lifesciences and Dishman Carbogen Amcis in the past one month.

Several leading foreign institutional investors, including Capital Group, Aberdeen, Amansa Capital, T Rowe Price, Teacher Retirement System of Texas, UBS, Morgan Stanley, SAIF Partners, Columbia Threadneedle, Fidelity, and Abu Dhabi Investment Trust have met the management of more than twodozen quality midcap companies in the past one month, and shares of some of these companies have since rallied.

The BSE Midcap index has climbed 10 per cent since mid-August as against an 8 per cent gain in the Sensex. Despite this rally, mid-cap stocks are currently trading at reasonable valuations, said analysts.


“Despite the recent climb, Indian mid- and small-cap stocks have underperformed the Nifty YTD and trade below their long-term averages, thus presenting buying opportunities in select names,” said Abhiram Eleswarapu, head of India equity research, BNP Paribas. “We tend to factor in a higher margin of safety… For stocks outside the Nifty, we see such candidates in insurance and NBFCs, and select areas of airlines, consumer and pharmaceuticals.”

Morgan Stanley and SAIF Partners met the IIFL Finance management this month. Similarly, Aberdeen Standard Investments had a meeting with the management of Affle India and CreditAccess Grameen. Julius Baer met Narayana Hrudayalaya, while T Rowe and Columbia Threadneedle met AU Small Finance Bank.

These stocks have rallied between 25 per cent and 45 per cent in the past one month. As investors and traders struggle for ideas to keep portfolios ticking, company meetings by foreign investors are being seen as the precursor to FPI investment commitments.

“Our meetings with corporates from various sectors suggest that formalisation of the economy is accelerating and leaders in individual sub-segments believe reforms-led disruptions are creating a strong base for future growth,” said Chirag Shah, investment analyst at CLSA.