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HSBC Bats for Midcap Stocks – Overweight

June 23, 2009

The Sensex trades at 16.2x 12-month forward PE. HSBC classifies stocks between Rs 2500 to Rs 4,00 cr market cap as a Midcap.

Why Midcaps ?:
The case for investing in mid-caps lies in cheaper valuations, trading at 10.7x 12-month forward PE, which is at a 28% discount to large-caps, while the valuation discount of midcap stocks tends to persist for a longer period of time.

On average, in terms of PE, the discount is 17%. Consensus forecasts that mid-cap stocks will grow earnings at a CAGR of 16.2% compared to an 11.5% CAGR for large-cap stocks over March 2009-March 2011e. We believe this makes for a compelling case for investment in mid-cap stocks.

This segment of the market has outperformed large-cap peers historically. The risks of investing in this segment relate to higher liquidity risk for mid-caps and higher leverage.

Triveni Engineering, Marico Industries and Voltas are the stocks recommended by HSBC with target prices of Rs 120, Rs 83 and Rs 150 respectively.

Comments

One Response to “HSBC Bats for Midcap Stocks – Overweight”

  1. Anonymous on July 19th, 2009 11:51 AM

    You know these MF's and FII's will tell you the worst of midcaps to invest, those which are fairly valued so that they can exit these stocks at the cost of retail investors

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