40K on the Sensex! Is it time to consider midcaps now?

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The economy is headed south but markets are taking long strides to the north.

40,000 onboard already! How much fire left in the bellies of the bulls?

The undercurrent of the market seems to be strong this time.

We analysed BSE Midcap index stocks to check the pulse of the broader market. Here’s what we found.

BSE Midcap is still down 19% from its all-time high made in January 2018. But surprisingly, as many as 32 of the 103 index constituents are trading above their January 2018 highs. Are these companies going to take a leadership position in the rally? Well, that can be anybody’s guess for now. Nonetheless, it certainly seems like the market believes these companies are likely to emerge stronger in future and that sentiment is getting built into prices.

Early midcap movers…

Sensex

Sensex

Sensex

What are the inferences?

Consumption-oriented and non-cyclical companies are reporting decent growth (even when the economy is passing through a turbulent phase) and stocks that are generating high returns on capital employed are in demand.

While some stocks that are racing upwards are quoting at an adjusted P/E multiple of over 60X—3M India, Berger Paints and United Breweries, among others – can you deny that they earn around 30% Return on Capital Employed (ROCE)?

Boss, mandi main bhi paisa banta hai! (It’s possible to generate lucrative returns in the stock market during tough economic conditions as well)

How is that even possible? Well, it’s because markets always build a case for the future; the past doesn’t last with them.

Perhaps it’s time to focus on scooping up stocks whose future looks promising!

Are you up for it?

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Disclaimer:

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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