Mid Caps To Outperform Even More In Near Term, Says Citi
Earnings growth holds the key for mid caps as valuation premiums remain high, the research firm says.
A sustained bull rally in stocks, foreign inflows and investments into domestic equity funds could drive mid caps even more in the near term, according to Citi Research.
“Mid caps have had a strong 2023 outperformance coinciding with strong momentum in FII inflows quarter till date,” the brokerage said in its note.
The earnings growth, which is somewhat lagging in large caps, may be the "key" sustenance as valuation premiums are above the long-term averages, the note said. Citi said that domestic small- and mid-cap funds continue to see higher net inflows compared to large-cap peers.
Citi, however, remains selective on mid-caps.
Overall, for Indian equities, Citi's Nifty March 2024 target implies a potential upside of 4%.
The NSE Midcap 100 index surged 10.32% since January 2023 till date, while Nifty 50 gained 3.37% during this period.
Top Picks
Citi made several changes to its mid-cap pick given the market cap changes, relative performance and outlook going ahead.
The research firm added ACC Ltd., Apollo Tyres Ltd., Carborundum Universal Ltd., and Delhivery Ltd., MMFS Ltd., PB Fintech Ltd., Sobha Ltd. and Sona Comstar in its mix. It removed Ashok Leyland Ltd., Crompton Consumer Ltd., Federal Bank Ltd., Indraprastha Gas Ltd. and Phoenix Mills Ltd..
It retained Mahanagar Gas Ltd., Devyani International Ltd. and Gateway Distriparks Ltd.
Valuation Premiums Above Long-Term Average
Mid caps' price-to-earnings and price-to-book premium to large caps continues to be on the higher side of recent trends, according to Citi.
Citi's coverage universe shows that large-caps have outperformed mid-caps on top-line and Ebitda growth more recently.
Meanwhile, in terms of relative valuations versus large-caps among sectors, mid caps in industrials and financials are trading in-line with the long-term averages, while I.T. appears the most expensive, the research firm said.
