The market has been partying hard since March on account of more than Rs 55,000 crore of FII inflows, the government’s several initiatives to boost growth and US Fed holding off on a rate hike until now. The Midcap 100 index surged 35 percent, beating Nifty that jumped 25.65 percent since March 1.
A majority of global as well as domestic investors believe the rally is not yet over. They expect the Nifty in the five-digit mark soon and advise buying on every dip.
CLSA says the Nifty Midcap100 index’s valuation premium over the Nifty is close to an all-time high, which is arguably on the back of a 54 percent consensus earnings growth projected for FY17 (16 percent for Nifty).
The brokerage house analysis suggests that such high growth is largely driven by a rebound in materials/energy and PSU banks (NPA recognition peaking) where sustainability of such high growth could be an issue.
Hence, it advises a cautious approach with preference over quality and growth visibility. Arvind , Crompton Consumer , Dr Lal Pathlabs , I DFC Bank , InterGlobe Aviation and Sobha are its key picks among midcap stocks.
CLSA recommends a switch to Crompton Consumer (from Havells), Inox Leisure (from PVR ) and Adani Transmission (from JSW Energy ) given large valuation differentials.
Among non-banking financial companies, the brokerage house recommends a switch from LIC Housing Finance to Indiabulls Housing .