Worst May for midcaps in 12 years, may fall more

Even as key equity benchmark indices continue to linger in negative territory, extending its fall for the fifth straight session, investors have not been kind to midcap stocks either. In fact, stocks in the midcap space have under-performed the benchmark indices, tumbling over 8% or 1,376.28 points in the month so far. On Monday, the BSE Midcap dropped 1.64% to end at 15635.75. This has turned out to be the worst month for the midcap gauge since 2006, according to Bloomberg data. In comparison to this, Sensex has lost 544.23 points or 1.55% while the broader Nifty slipped 222.65 points or 2.07% so far.

Rahul Shah, vice-president, equity advisory group at Motilal Oswal Securities said, "The midcap stocks have fallen more than large-cap stocks. It's a good enough correction. There is a re-rating for the stocks in the midcap segment going on. Over the last three years, the valuation gap between the large-cap and mid-cap gauge has become huge."

In the current month so far, several midcap stocks have witnessed around 20-30% correction so far, with investors mostly following the 'sell in May and go away' theory in this segment. According to analysts, multiple factors ranging from elections in Karnataka state and rising global crude prices to depreciating rupee against the dollar contributed to the lingering weakness in midcap stocks.

Among the 100 midcap stocks listed on BSE, 93 stocks are trading in the red zone with only seven scrips bucking the trend.

Vakrangee, Ajanta Pharma, Wockhardt, Adani Power, Tata Global Beverages, Ashok Leyland, Federal Bank, GMR Infrastructure, JSW Energy, IDFC Bank are the top 10 midcap stocks which have lost the most during the month.

The market watchdog Securities and Exchange Board of India's (Sebi) order on re-categorisation of mutual funds also affected the midcap segment, according to Shah.

PNB Housing Finance, whose valuation has surpassed that of its parent Punjab National Bank now, has been trading in the red. Other major midcap stocks like TVS Motor, Reliance Capital, Reliance Communication, Bharat Forge, Mahindra and Mahindra Financial, Biocon etc. have fallen as much as 15.75% during the period.

On the other hand, Tata Global Beverages, Ashok Leyland and JSW Energy despite posting good earnings numbers bore the brunt of investor selling. Ashok Leyland posted its highest ever profit in the fourth quarter ending March 2018. The company reported 40% jump in net profit to Rs 667 crore. However, the company's stock still plunged 18.33% in the month. Similarly, Tata Global Beverages and JSW Energy too reported impressive quarterly earnings, but their respective stocks failed to evoke any positive repsonse from the investors.

With the market expected to witness volatility with a negative bias in the near term, select stock market experts feel more correction is in the offing in midcap stocks.

"We expect more 3-4% correction in the midcap segment. As of now investors should move to bottom switch counter and invest in more heavyweight stocks. Private sector banks, FMCG are good options to invest for now," Chandan Taparia, derivatives and technical analyst at Motilal Oswal Securities said.