8 Stocks Account for 60% of BSE Midcap's YTD Return: Charting the Midcap 8 vs Midcap 90

It's less than 3 weeks since election results have been out. Indian equity markets are having a record-breaking run.

Major indices are achieving new lifetime highs every passing day.

On Friday last week, the markets broke their streak and benchmark indices Sensex and Nifty ended a tad below their all-time high.

There was one outlier index that stood out and continued its record run despite overall market sentiment being negative.

The BSE Midcap index has surged to unprecedented levels driven by robust investor sentiment and significant contributions from a select few stocks.

Interestingly, an IT company accounts for majority of the Midcap index's year-to-date gain, and seven other stocks included have accounted for 60% of the index's total YTD return of 25%.

A key reason for this unprecedented outperformance is that these eight companies have posted strong EPS growth vs the average typical midcap company.

Furthermore, strong results for the past four quarters have prompted analysts to raise their forecasts.

So, let's look at the top 8 stocks (out of the total 98) that have contributed significantly to the midcap's record run in 2024 so far.

#1 Oracle Financial Services (OFSS)

OFSS stands as the only multibagger stock of 2024 so far within the BSE midcap index.

In 2024 so far, shares of the company have surged 124%.

On top of that, the company has rewarded investors with two massive dividends of Rs 225 per share and Rs 240 per share.

IT companies usually declare big dividends or reward shareholders by way of buybacks.

In case of OFSS, the company has increased its dividend payout consistently throughout the years.

The stock currently trades at a PE of more than 38x, which is more than 100% higher than the average PE multiple of 17x that it has commanded over the last 5 years.

Although the company has recorded good growth in profits in FY24, which led to a huge jump in its stock price, the kind of growth of this magnitude does not seem sustainable in the long run... unless and until it has something blockbuster to show on the artificial intelligence (AI) front... after all, OFSS is one of the top AI stocks in India.

Right now, the growth in its PE multiple has grown much faster compared to its long-term average of 8-10%.

The company will be in focus soon now that global IT major Accenture has posted its earnings.

#2 Cummins

Next up we have Cummins India with a 98% gain in its stock price in 2024 so far.

Close your eyes and think about the sectors that you believe are going to drive India's growth story going forward.

If you ask me, the sectors that come to mind are, infrastructure and construction, defence, railways, oil and gas, (especially the city gas distribution space), mining (both plentiful as well as rare earth minerals) and of course, exports.

And Cummins India has a sizeable presence in all of these sectors and it's experiencing strong growth in each of them.

From being a leading supplier of Diesel Electric Tower Cars (DETCs) to Indian railways for monitoring and inspecting overhead electrical transmission equipment to being a critical supplier for the Heavy Earth Moving Machinery Market (HEMM)...

From helping Indian Navy with its fleet expansion and modernisation to powering 'Made in India' missiles and rocket launching systems...

And from supplying gas compression machines for the rapid expansion of city gas distribution to emerging as reliable back up power source for huge data centers spread across the country, Cummins India has its growth tentacles spread far and wide.

All of this combined has led to Cummins India emerging as one of the dark horses of the India manufacturing story.

The stock has done remarkably well in 2024 and this buoyancy seems to be the result of the company's stellar performance for the past four quarters. The outlook for the next few quarters also seems quite good.

However, at the current valuations, the risk-reward ratio of staying invested in the stock appears no longer to be in the favour of investors.

The stock currently trades at a PE of close to 65x which is almost double of its 5-year median PE of 36x. This is quite high, and it appears the stock is already factoring in growth that could accrue in the near term.

And let's also not forget the fact that the company's business is significantly reliant upon fossil fuels in a world that's increasingly making all the right noises about going green.

#3 Oil India

Oil India is another stock that's responsible for the Nifty Midcap index's record run.

In 2024 so far, the company's stock price has shot up by more than 80%.

Oil India is a fully integrated oil and natural gas company that explores, develops, produces and transports crude oil, natural gas and liquified petroleum gas (LPG).

Apart from its core business, the company has also ventured into renewable energy where it generates electricity through solar, wind and green hydrogen sources.

The constant expansion undertaken by the company has allowed it to ascend to the second-largest oil and natural gas company in the country. In 2024, Oil India contributed to around 10% of the country's crude oil production.

For getting future ready, Oil India aims to enhance its business further, mimicking its past growth trajectory.

The company has outlined a capex of Rs 60 billion (bn) for the financial year 2025 geared towards its refineries and drilling and exploration business. This expansion will be funded via a mix of debt and internal accruals.

Despite carrying some debt, Oil India has consistently prioritized shareholder returns. It has been paying dividends since 2010, boasting a remarkable 5-year average dividend yield of a whopping 7.3%.

Valuations wise as well, the stock may be trading way above its median 5 year or 10 year average but it's still in single digits... much rather than the other midcaps which have seen an explosive growth in valuation multiples.

Oil India currently trades at a PE multiple of 9x, compared to its 5 year average of 4.2x.

Which Other Stocks Contributed the Most to BSE Midcap's Record Run?

Apart from the above, here are five more stocks that have been responsible for the record run in BSE midcap index.

Company	Current Price (Rs)	Change (%)
Indian Renewable Energy Development Agency Ltd.	187.85	80%
Samvardhana Motherson International Ltd.	187.65	77%
Exide Industries Ltd.	569.45	77%
JSW Energy Ltd.	722.95	76%
Indian Railway Finance Corporation Ltd.	176.3	76%

Source: Equitymaster

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Can This Last?

The problem with momentum is that when it reverses, it can do so in a big way.

With the same winners winning day after day, largely on growing enthusiasm, it does make sense to fear a big reverse at some point, given the current valuations.

Nevertheless, investors are getting more comfortable putting their money in midcaps compared to largecaps or smallcaps as the midcap universe provides best of both worlds.

The key is to find an ideal combination of a fundamentally strong midcap company, which has fast growth, and a discounted stock price.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...