Mid-caps feel the pinch

• Mid-caps hit: An analysis of 190 mid-cap firms shows a 26.81 per cent growth in net profit, not only less than the aggregate growth rate but also much lower when compared to profit growth of 63.29 per cent registered by 568 small-cap firms and 39.32 per cent growth of 58 large cap-firms. In fact, mid-cap firms have not been able to push up their bottomline in proportion to the topline. And this is mainly due to an increase of 27.95 per cent in total expenditure and 13.75 per cent increase in interest cost. Says Arvind Parik of Jindal Strips, “Inflationary trend of the fiscal has had an impact on the mid-cap firms”. Here too it’s the sole segment where interest costs have gone up during the quarter.

• Banking bares the brunt: Along with other financial companies, which form a chunk of the mid-caps, banks have performed badly during the quarter. In fact, out of 69 mid-caps that have shown a negative growth in net profit during the quarter, 15 are from the banking and financial sector. Leading the pack is Centurion Bank, with a 208.56 per cent fall in net. The fall in bank profits is mainly due to a squeeze in their spread on interest rates. Says a CMD of PSU bank, ‘‘While banks are hiking the deposit rates to attract deposits, lending rates are yet to pick up due to excess liquidity.’’

• Small-cap remain leaders: Like the previous quarter, small cap firms hogged the Q3 limelight. Prudent cost management was the mantra for small-caps and this translated a 13.33 per cent growth in sales to a 63.29 per cent growth in net profit. The small-caps registered the minimum rise in total expenditure among all at 12.23 per cent and were able to bring down their interest cost much more than others, by 12.53 per cent. As a fund manager pointed out, “The emergence of the small sector is an indicator of the strong growth in the economy”. In fact, the Q2 trend in favour of small caps was strengthened during Q3 as the firms registered a 91.57 per cent growth in Q3 net profit as compared to Q2.

• Markets lean towards…: Small is beautiful for the stock market too. According to an NSE dealer, “Even when the market witnessed a 500-point correction last week, many of the small-cap companies were rising. It was a performance-based rally.” In fact, mutual funds and FIIs have also started looking at the small-cap sector. Pawan Dharnidharka, a BSE broker, points out that “FIIs initially invested only in big-cap stocks. Once this sector got saturated, they started focussing on mid-caps.

Now, they are looking at small-caps. Ditto is the case with mutual funds.’’ Surely, some scope for carful bargain hunting here.