Bonaz Capital | Stay with winning theme!

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Even as midcap stocks have come under some pressure in the last two weeks after being on a one-way journey in the last five years, it makes sense for investors to remain invested in quality midcap stocks which are in the portfolio of top five midcap funds.
Top five midcap funds according to Sharekhan advisory have given an annualised return of 25-32 percent and more than 70 percent of the top five stocks have more than doubled in the last 5 years, data showed.
Stocks like Sundaram Clayton rallied 2,500 percent, followed by Atul (1191 percent), UPL (640 percent), Navin Fluorine (617 percent), and SRF (679 percent) in the same period.
The S&P BSE Midcap index more than doubled in the last five years compared to 90 percent rally in the S&P BSE Sensex. Investment in midcap and smallcap stocks picked up momentum in the last three years when the Modi-led government took charge of the country on May 26, 2014.
Midcap stocks came on investors’ radar after the Modi-led NDA government came to power back in 2014 on renewed focus on reforms, proposal to implement goods and services tax (GST), measures initiated by the govt to boost agricultural income as well as productivity.
Small and midcap funds have also not disappointed investors. Almost 95% of small and midcap funds have beaten S&P BSE Mid & Smallcap index on a 1 year, 3 year and 5-year rolling return basis, according to Morningstar data.
Tracking the momentum, the midcap and smallcap stocks have been able to deliver returns which made many investors crorepati's in quick time. But, will the outperformance continue, that is the big questions which everyone is asking?
Well, after a strong upmove in the broader market investors are advised to take some money off the table while adding exposure towards quality midcap stocks.
The list of top five stocks in each of the funds does give a reference list of quality midcap names which have delivered consistent performance, but investors should do their own research before putting money.
“A section of midcaps is quite stretched in terms of valuations. So one needs to be stock specific in approach in this category,” Harsha Upadhyaya, CIO, Equity, Kotak Mutual Fund told Bonaz Capital
“We advise investors to invest in a disciplined and regular way without chasing momentum. Investment horizon should ideally be longer for midcap funds compared to largecap funds,” he said.
Vidcap as a theme is witnessing some profit booking after a sharp rally seen in the last two months, but that doesn’t call for moving out of the theme completely. Investors should remain invested but can look to reduce exposure and diversify some in largecap fund categories.
The Midcap index has shown a correction of around 4 percent while smallcap index corrected almost 5 percent in last week while broader index Sensex /Nifty moved almost 1.5 percent.
“Even though we are seeing profit booking is happening on Mid/Micro-cap segment, we suggest not to move out completely. As investments are mostly via the SIP/STP route with investment frame of mostly over 3 years,” Rupesh Bhansali, Head, Mutual funds – GEPL Capital told Moneycontrol.
“Those investors who have completed their 3 years and above and require funds, can book some profits and hold the remaining in the same fund,” he said.

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