Midcaps that are favourite of mutual funds

NEW DELHI: As the bull run expanded to the broader market on Dalal Street, five top-performing midcap schemes delivered a strong 90-110 per cent returns for the past one year.These schemes have many common stocks among their top 10 holdings, including Jindal Steel, SRF, Voltas, Federal Bank and Max Financial, among others. Analysts largely have ‘neutral’ to ‘positive’ views on these stocks. Data showed PGIM India Midcap Opportunities delivered a strong 107 per cent return against the BSE Midcap Index's 83 per cent gains for this period. It was followed by Quant Midcap (up 95 per cent), Mirae Asset Midcap (93 per cent), Edelweiss Midcap |(90.93 per cent) and SBI Magnum Midcap (90 per cent).Except for Quant Midcap Fund, other schemes shared many common stocks among their top 10 holdings, data compiled from publicly available data from Value Research suggests.Federal Bank is a common stock in PGIM India Midcap (3.64 per cent stake, fourth largest holding), Mirae Asset Midcap (4.18 per cent stake, second biggest) and Edelweiss Midcap (2.68 per cent, sixth biggest). Analysts are largely positive on the private lender. “We believe key positives for the company are its increasing retail focus, strong fee income and adequate capitalisation,” said Axis Securities. Cholamandalam Investment is a common stock in PGIM India Midcap (3.51 per cent), Edelweiss Midcap (3.07 per cent), and SBI Magnum Midcap (5.51 per cent). Analysts said the company is doing relatively better and is gaining market share in certain segments on weak competition.“Cholamandalam stands best in the CV financing space owing to right product positioning, sufficient shock absorbers to tackle the second wave of Covid, and superior return profile,” said Prabhudas Lilladher. Jindal Steel is common in Mirae Asset Midcap (3.4 per cent) and Edelweiss Midcap (3.48 per cent). Analysts said rising volumes and elevated steel prices would continue to drive JSPL's operating performance and in turn accelerate its deleveraging process.Max Financial Services is a common stock in PGIM India Midcap (3.04 per cent) and Mirae Asset Midcap (2.09 per cent). CLSA said that Max is a consistent share gainer and with the Axis Bank deal, gains may only accelerate. It noted that Max Financial has narrowed its cost gap versus peers, has the highest agency efficiencies, and is one of the fastest-growing banca partnerships.Voltas is common in PGIM India Midcap (3.61 per cent) and Mirae Asset Midcap (2.73 per cent). Analysts are ‘neutral’ on this stock. Mphasis and SRF featured in the portfolios of both Edelweiss Midcap and Mirae. SBI Magnum and Edelweiss Midcap shared JK Cement. Analysts have a ‘buy’ rating on Mphasis but are ‘neutral’ on SRF and JK Cement. Only the top 10 holdings of these schemes were considered for this report."The opening up of the economy post the first Covid wave saw demand come back, which led to stronger earnings visibility for corporates and it percolated down to even the midcaps," said Aniruddha Naha, Senior Fund Manager – Equity, PGIM India Mutual Fund.Aishvarya Dadheech of Ambit Asset Management said midcaps have performed meaningfully well whenever the economic recovery has seen strong momentum in the last 20 years. "It happened from 2004 till 2007-08, when we saw a massive outperformance of this segment. It also happened in 2017 when our GDP grew almost 8.3 per cent. At present, we believe that possibly over the next two to three years once, we come out of this Covid, the economy is going to go, give a lot of boost.While investing into midcaps, one needs to look for good businesses with strong operating cash flows, clean balance sheets and good return on capital employed, Naha said. Dadheech said it is important to note that a large part of rerating in the market has to with the earnings growth. “A lot of sectors and segments have actually gained meaningfully from Covid crisis -- those players with strong balance sheets, strong brands and strong distribution in the midcap and small cap space are gaining a lot of market shares from the unorganised space. Their trajectory is looking very-very promising and that justifies that the kind of valuation that is visible in the market as we speak,” he said.