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Mid caps still offer value – Edelweiss

October 15, 2009

India will continue to remain one of the preferred long-term investment destinations. While the broad market indices and most large caps are trading already in the ‘fair to expensive’ zone, investors will keep spotting value in some of the relatively less-known pockets. Growth phases typically reflect strong preference for mid-cap stocks. At the moment, however, large – cap stocks are at a significant premium compared with mid-caps, which should reduce with more definite signs of recovery over the next six months. Thus, a pro-active bottom-up stock selection can provide significant upside over the medium term.

Currently, the BSE 100 1-year forward P/E is at ~16x, while the BSE midcap 1-year forward P/E is at ~12x. Expect the premium of ~4 to reduce over the next two quarters.

Edelweiss is overweight on BFSI, metals and materials, real estate, healthcare, and industrials, and underweight on IT, cement, consumer staples and discretionary.

Mid-Cap Picks by Edelweiss for Medium Term – Escorts, Welspun-Gujarat, Shiv-Vani Oil & Gas, Everonn and Mahindrta Holidays.

Mid-Cap Picks by Edelweiss for Long Term – Usha Martin, Anant Raj, Madhucon Proj, Sadbhav Eng. and Koutons.

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