»Fast Profits Daily by Equitymaster

On This Day - 13 JULY 2022
Invest in these Midcap Stocks

Brijesh Bhatia, Research analyst

The midcap index has started to outperform the Nifty. These stocks have good potential to offer strong returns to investors.

But which midcap stocks should you consider?

In this video, I've shortlisted the best midcap stocks for your watchlist.

Watch the video and let me know your thoughts.

Hello viewers. Welcome to the Fast Profits Daily. Myself, Brijesh Bhatia.

Markets have been coming back very, very strongly right from 15,200 back towards 16,200 levels. But most importantly, if you look at the recent movement especially since post June, midcaps have been consistently of performing against the Nifty.

I would just like to take you to 2020 where the V-shaped recovery happened and since the last quarter, especially since the start of November 2020 to the end of 2021, midcap has seen a tremendous rally.

If you remember, I've done past videos as well when smallcaps and midcaps started outperforming against the Nifty which is the benchmark index.

Again if I look back to the history, right into the November 2020 when the midcap outperformance started, it rallied till December 2021. It rallied around 82% against the Nifty, which rallied around 52%.

I'm not taking the lows of March 2020. I'm just taking when momentum started for midcaps, and it was nearly, if I look at the ratio, it was nearly around 50% outperformance.

Now, as I said, from the second half of the June, we're markets started recovering from 15,600-15,700 back toward 16,200, midcap was the one which started outperforming again.


Now, if I just look at the first chart over here on screen, this is the weekly chart and if you look at the weekly chart, the green marks which are there, are forming the higher lows.

So here the higher lows structure is intact if you look at the momentum of the ratio chart. Which means that the recent lows of 2020 and the momentum is coming back very, very strongly.

Now, if you look at the historical move right from, if I just look at Q4 the left bottom, to 2005, which was nearly four years, it rallied at a faster pace, which was a rally of around 205 weeks.

Secondly, if I look at 2013-2018, Q1 2013 to Q1 2018, when midcap generally topped out and the underperformance began for midcaps, it rally for consistently, 220 weeks.

So here the point of highlight is if you look at the recent rally, which is ongoing from November 2020, or October 2020, we are still around 117 weeks. So the rally still young.

If I just consider that 200 weeks of rally, we still have around 80 weeks of a rally, which is being there for midcap outperformance against the Nifty.

So yes, post the rally we saw first of midcap been underperforming against the Nifty especially till end of May. But from mid of June, we started resuming the bullish momentum.


If you look at the second chart over here, it's the daily ratio chart of midcap index to Nifty.

Now, if you look at the 200 days average, which is the orange line over here, and if you look at the green line, which were the previous swings being taken as a support, now the ratio is moving above 200 days average, i.e. the orange line.

Simultaneously look at the bottom over here the RSI, it has seen ability a bullish relationship. So if you look at the previous rally where the ratio broke about the above 200 average with the bullish relationship and we saw an outperformance.

Similarly, the momentum is getting stronger now. If you look at the recent log of the rally is faster than the previous leg of the rally, which indicates that the midcap in stronger than the Nifty 50.

So considering the weekly, considering the daily, I believe still, there is a huge room for midcap outperformance against the Nifty, and I'm expecting that probably till mid 2023 or Q4 2023, we might see that midcaps could continue to or perform against in Nifty. History is likely to repeat of around 220-205 weeks for the outperformance of the midcap over the Nifty.

Well, which are the stocks you should look at?

Based on a similar ratio and outperformance and underperformance criteria I've shortlisted some, a few of the stocks which are on your screen.

Company Name
Hindustan Aeronautics Ltd.
TVS Motor Company Ltd.
Mahindra & Mahindra Financial Services Ltd.
Ashok Leyland Ltd.
Cummins India Ltd.
ABB India Ltd.
Trent Ltd.
AU Small Finance Bank Ltd.
Bharat Electronics Ltd.
Canara Bank
Page Industries Ltd.

The stocks like HAL. I have done a video on defence. In case you have missed that video, go to our archives. A couple of months back, I've done a video on defence stocks as well.

TVS, M&M Finance, Ashok Leyland, Cummins, ABB India, Trent, AU Small Finance Bank, BEL, Canara Bank, Page Industries.

Now, the criteria to select these stocks was when the midcap really started, these stocks are started outperforming against the midcap index as well in the previous leg. Now when the momentum is building again for the midcap over the Nifty, these stocks are again outperforming against the midcap index.

So that was the criteria to choose when the stocks into the first leg of rally has continued to outperform and the stocks the same stocks which are continuing in the recent leg of the rally into the midcap index. This was the criteria to select these few stocks.

There were few stocks as well, which has run over 100% in the first leg of really between November 2020 to December 2021 but they didn't perform in the recent leg of the rally. There are a few stocks which, like Tata Power L&T, LTI, IRCTC, Astral, Coforge, BHEL. These are the few stocks which rallied more than 100% when the midcap index rallied around 82%.

But in the recent leg of rally where midcap outperforming against the Nifty, they are not showing a sign of strength in the ratio chart against the midcap index. So that is the reason I have excluded the stocks. But definitely you can look at the stocks which I have highlighted which are outperforming in the first leg of the rally as well as the second leg of the rally.

Warm regards

Brijesh Bhatia
Brijesh Bhatia
Research Analyst, Fast Profit Report
Equitymaster Agora Research Private Limited (Research Analyst)

{lb~Midcap stocks}

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