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Midcaps to do well; positive on these sectors
Shreyash Devalkar, Fund Manager, BNP Paribas AMC
Jul 01, 2016 | Source: CNBC-TV18
Midcap stocks have done well over the past few years, are likely to continue to do well going forward as well.
The recovery in India was not homogenous in nature and sections of the economy that were doing well have more representations in midcaps. I picked textile, airlines, media & entertainment, and chemical as sectors that would likely outperform going forward.
You just go 5-6 years back and there were so many movie exhibition companies and the profitability of that sector was under question. And suddenly in the last 4-5 years the sector slowly and gradually, has seen the sector getting consolidated. And that has resulted into the higher income for these companies. Apart from movies-exhibition, look at the food prices, the advertisement which is being sold. So, apart from just the exhibition of the cinema, it is many more things which the companies can earn from now.
In India, over the last 3, 5, 10 years, whatever time period you take, the midcaps have tended to outperform the largecaps and that trend will continue because what is happening is currently in the market, the recovery this time is not homogeneous in nature, it is more of heterogeneous in nature.
And in that a section of economy which is doing well, we have more representation in mid and smaller cap space. So, I will give you an example of textile sector, there are some chemical industries which are doing well, the media exhibition industry, airline is the industry is doing very well in the cycle. So, there are various different industries which are doing well and they represent totally different section of economy which we have never seen in the last 10 years.
For Airlines sector, the key anchor or the key trigger point was the crude oil, not because of the profitability improvement, but because of the price points in the markets. So today, the air ticket prices are somewhere around Rs 4,000-5,000 and that is the right ticket point for many people to fly. And that is where we have seen a surge of passenger growth in last one year – almost 20 percent plus. So, as long as this price point remains here and I do not see this price point moving up substantially unless the crude touches USD 60 per barrel, the demand would remain and I always focus on the incremental demand and the incremental supply. So, in this sector what we are looking at is, as long as this incremental demand is more than incremental supply and price point remaining here, the sector should continue to do well.
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