Mid-cap segment looks an attractive buy

Markets are currently poised on a crucial resistance level from where they have peaked out a number of times during the last six months.

Written by AshishKapur
March 29, 2010 09:52 PM IST

3 min read

Markets are currently poised on a crucial resistance level from where they have peaked out a number of times during the last six months. Though the trend is strong and institutional buying is encouraging,yet it will take sometime for the markets to break past the broad trading range of 4700-5400 of Nifty in which they have been confined since October last year before they move to higher levels. This time around,action is likely to be concentrated in the mid-cap space where investors can make profits in the near term.

While the broader markets have gone up,many of the mid-cap stocks are still available at significant discounts to their fair value or their all-time highs. Sentiment is likely to remain positive and for active investors and traders the big opportunity lies in the mid-cap space. Videocon Industries,IndusInd Bank,Yes Bank,Spice Mobile,Kaveri Telecom,Emco,Indo tech transformers,Visaka Industries,KS Oils and Mahindra Satyam are some mid-cap ideas which may be considered. However,investors may do well to remember that mid-caps carry a higher degree of risk and are suitable for investors comfortable with a high degree of choppiness in the markets.

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The recent hike in repo and reverse repo rates by the Reserve Bank of India RBI and weak global cues will result in some liquidity getting sucked out of the system. Also,this is a clear signal of hardening interest rates in the near future. However,markets reaction was more or less over by a weak trading session on Monday. After five consecutive weeks of gains we were anyway due for some correction. The advance tax numbers are on expected lines and point to a sustained industrial growth. Nonetheless,most of this was expected and has already been factored in prices. This move by the RBI gave an excuse for the markets to correct themselves. Though interest rate sensitive sectors like automobiles,banking and reality have fallen significantly,yet we do not see any reason to panic. In fact,in this partial correction,we are likely to form a base for the next upmove,which would lead us beyond the intermediate peak of 5300 of Nifty. This base may take a couple of months to form. By the end of the first quarter of the next financial year markets will start looking beyond FY11 and then if the growth momentum is still strong and monsoon are normal this year,we have a strong chance of breaking past this range to higher levels. Inflow of funds to emerging economies is likely to remain robust as western economies are still struggling to come out of the recession.

Hence,we advise investors to stay invested and use declines to buy more.

Banking,IT,capital goods,cement,metals and automobiles are some of the sectors that are likely to outperform the markets on the way up. On the other hand,interest rate sensitive sectors like automobiles and banking,which have fallen significantly after the RBI announcement,present good buying opportunities for the medium term.

The author is the chief executive officer,Invest Shoppe India.