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NEW DELHI: Kotak Institutional Equities no longer advises India center cap companies because few stocks have been found, apart from a select few in the financial sector, that have further upside potential beyond midcap Table of contents‘s notable increase this year.
The domestically-focused midcap index has hit numerous all-time highs and posted a gain of 31% this year, significantly outperforming the 10% rise in the benchmark Nifty 50 index. This exceptional rally has raised concerns about a possible market correction.
Expressing their views in a note, Kotak analysts Sanjeev Prasad, Anindya Bhowmik and Sunita Baldawa said: “The main driver of the rally seems to be the irrational exuberance among investors, with high return expectations being driven by the high returns over the past few year. We see little point in looking for fundamental reasons behind the surge in stock prices…”
The buoyant market sentiment was attributed to three key factors:
*A substantial increase in the price of numerous mid- and small-cap stocks.
*Significant inflows into mid- and small-cap mutual funds.
*A substantial increase in the number of new private participants in mid-cap and small-cap funds.
As a result of this rally, most of the 15 stocks in Kotak’s model mid-cap portfolio are currently trading near their fair values over the twelve-month period. The brokerage has found limited opportunities for significant upside outside the banking, financial services and insurance (BFSI) sector, with just five BFSI stocks in the portfolio.
Kotak analysts argue against recommending stocks with low conviction and potential downside to their fair value, in many cases citing deteriorating business fundamentals.
The brokerage also highlighted that institutional investor favorites such as Aditya Birla Fashion, Crompton Greaves, Jubilant FoodWorks, Voltas, TCNS Clothing, Page Industries and Vedant Fashions have underperformed due to weak consumer demand.
Furthermore, Kotak expressed concerns about the quality of these stocks given their historical track records of weak execution and governance in the broader ‘investment’ sector, including capital goods, defence, railways, real estate and renewables.
(With input from agencies)
The domestically-focused midcap index has hit numerous all-time highs and posted a gain of 31% this year, significantly outperforming the 10% rise in the benchmark Nifty 50 index. This exceptional rally has raised concerns about a possible market correction.
Expressing their views in a note, Kotak analysts Sanjeev Prasad, Anindya Bhowmik and Sunita Baldawa said: “The main driver of the rally seems to be the irrational exuberance among investors, with high return expectations being driven by the high returns over the past few year. We see little point in looking for fundamental reasons behind the surge in stock prices…”
The buoyant market sentiment was attributed to three key factors:
*A substantial increase in the price of numerous mid- and small-cap stocks.
*Significant inflows into mid- and small-cap mutual funds.
*A substantial increase in the number of new private participants in mid-cap and small-cap funds.
As a result of this rally, most of the 15 stocks in Kotak’s model mid-cap portfolio are currently trading near their fair values over the twelve-month period. The brokerage has found limited opportunities for significant upside outside the banking, financial services and insurance (BFSI) sector, with just five BFSI stocks in the portfolio.
Kotak analysts argue against recommending stocks with low conviction and potential downside to their fair value, in many cases citing deteriorating business fundamentals.
The brokerage also highlighted that institutional investor favorites such as Aditya Birla Fashion, Crompton Greaves, Jubilant FoodWorks, Voltas, TCNS Clothing, Page Industries and Vedant Fashions have underperformed due to weak consumer demand.
Furthermore, Kotak expressed concerns about the quality of these stocks given their historical track records of weak execution and governance in the broader ‘investment’ sector, including capital goods, defence, railways, real estate and renewables.
(With input from agencies)