Next Six Months Best Time To Invest In Mid Caps, Carnelian Capital Says

Carnelian Capital’s founder names mid-cap themes which will make good investments.

Traffic and pedestrians pass the BSE building. (Photographer: Dhiraj Singh/Bloomberg)
Traffic and pedestrians pass the BSE building. (Photographer: Dhiraj Singh/Bloomberg)

The next three to six months is the best time to invest in mid-cap stocks of companies with “good business models” as market uncertainty has led to a drop in their valuations, according to Vikas Khemani, founder of Carnelian Capital Advisors.

The market was very excited about the space a year-and-a-half ago when the valuations were very high, Khemani told BloombergQuint, suggesting companies in the engineering, procurement and construction. “I would say this is the time to start nibbling.”

The risk-reward for certain mid-cap themes is very favourable despite a possible correction of 8-10 percent in the market, he said.

Now that the order books, profitability and execution time is much better, and valuations have fallen to 5-6 price-to-earnings, the market is not focussing on the theme, Khemani said. “This is only because the political uncertainty due to the upcoming general election and the liquidity crunch has led to lack of confidence in mid-cap stocks.”

While most market experts agree that results of Lok Sabha polls will not have a long-term effect on the economy or the market, they expect equities to remain volatile for a few months after the election. More so for mid- or small-cap stocks. The liquidity crunch stemming from a few non-banking financial companies has also led to a confidence deficit in the market.

Here are the other highlights from the conversation:

  • Internals of markets are quite weak; slowly issues are settling down
  • Macros are slowly and steadily moving in the right direction
  • Interest rates are coming down; inflation is under control
  • Things will improve in coming few quarters
  • 15-18 percent growth in earnings is quite reasonable; hopefully it sustains
  • Don't see derating of Indian markets
  • One of best period to invest for the next six months
  • Organised to unorganised themes is underway
  • EPC companies’ order books, profitability is better with lower valuations
  • Building material companies look good
  • Markets are worried about the short term issues
  • Many such segments where stock valuations are down to half
  • If we have good stable government in coming months, markets will gain confidence
  • Credit supply in the economy will start to improve soon

Watch the full interaction here:

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