How to become rich in India on stock markets: Think beyond large caps, these 12 midcaps are seen skyrocketting

How to make money on stock markets is a question that all retail investors ask themselves, and others, all the time. Well, here is an opportunity that should be of interest to them. Midcap stocks on Dalal Street currently, are affordable as their prices have corrected significantly over the last few months. Trend has shifted and now and if investors are seeking to place reasonable bets, then returns are likely to be outstanding. Analysts at JM Financial in their research note state that investors should think beyond large cap investments. Data reveals that Nifty Midcap 100 Index PE to Nifty PE peaked at 1.28x in April’18. The previous peak was in 2007-8 at 1.1x. With that, Nifty100 Midcap and BSE100 Midcap are now down 18% from the peak 18 months ago and are now trading at a discount of 15% to the Nifty 50 (compared to historical lows of 30-40% discount).

Though both, largecap and midcap index have the highest weightage in financials, the midcap index is more cyclical in nature due to higher weightage in PSU financials, consumer discretionary and industrials sectors. The weight of the stressed names have declined from 6.2% in Apr’18 to 2.1% now.

The analysts in the note said, “We notice a reasonable correlation between growth in the 12 month moving average of the market caps of the indices and domestic flows highlighting the significance of domestic flows in driving the stock performances of the midcap sector. Since the peaks, amongst the top 100 midcaps, 30% of the stocks have corrected 25% or higher, and 35% have given positive returns. The correction is mainly concentrated in cyclicals and “stressed companies.” This also coincided with a slowdown in domestic flows.”

As per the note,  the combination of monetary easing and expected fiscally expansionary policies with a benign global backdrop (low rates, low oil prices) can start to drive a recovery over the next 12 months. Individual stocks are beginning to offer reasonable risk-reward, hence, the analysts have identified 12 non-large cap stocks to invest in.

These 12 stocks are Bharat Forge, Chalet Hotels, Chola Financial Holdings, Cyient, Info Edge, Muthoot Finance, Natco Pharma, Sanofi India, TeamLease, Timken, V-Guard and Westlife Development. 

“We can try putting them in different buckets but for simplicity, these are a combination of “growth at a reasonable price” and “value” stocks,” says the note. 

Finally, the note adds, “We can consider “thematic” buckets to put them into but ultimately, stock performance should prevail. A short investment thesis on each of these are in the upcoming pages.”