Midcap Update

From the chart, we can see that Midcap is on the break of the lower Bollinger Band. Buying at this scenario often works as it is oversold territory. Stocks that break the lower Bollinger Band and enter oversold territory face heavy selling pressure. This selling pressure is usually corrected quickly. However with positive signals for most of the midcap stocks, it is a low probability that midcap will continue to ride the lower band down and make new lows. The support line at 2200, which is tested 7 times previously also gives a signal that prices should revert back. So the expectation of bullish reversal makes it the right time to invest in some midcap stocks.
In the last update we have seen that the performance of midcap was mixed one with 40 mid cap components being total negative, 36 being total positive and 48 being non- conforming (India Midcap update). However, we can see that time has changed for midcap stocks with 73 total positive signals and 10 negative signals. Some of these mid-cap companies are growing quite well. However, not all mid-cap stocks are good investment options. So, stock picking plays an important role for midcap companies, which are capable of delivering superior returns. Investing in mid-cap components is tricky, as the segment is volatile and not known to give consistent returns.
Please find enclosed the review for some of the mid cap components.
Summary
We have 73 running total positive (both Jiseki and price signal positive), 10 running total negative (both Jiseki and price signal negative) and rest neutral (both Jiseki and price signal non-confirming).
Positive (73)
There are 73 components that are positive on both price and Jiseki cycle. Stocks like Shree Cement, Financial Technologies and Muthoot Finance are able to deliver return of approx 46%, 33% and 37% respectively in less than 115 days. In less than 50 days of signal holding period, stocks like Century Textile and Aurobindo Pharma is able to deliver return approx to 25%.
Negative (10)
There are 2 components that are negative on both price and Jiseki cycle. Opto Circuits lost around 31% in span of 183 days of signal holding period.
Non Confirming Signals (34)
This leaves us with 34 components that have a non-confirmation between price and Jiseki cycle filters.
We have also updated on some of the buys from the Midcap segment in the report.
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Indexing: The INDIA 30 Orpheus Risk Management Index (ORMI) is based on proprietary algorithm.
The indices values that are disseminated today are broadly based on market capitalization methodology. Market capitalization methodology has been challenged globally for a few broad reasons. 1) As an asset strengthens it is given more weight 2) As an asset weakens it is given lesser weight. This on one side captures momentum but on the other side suggests investors to focus more on growth compared to value. This increases portfolio risk when market growth slows down or reverses, as has been the case since 2007. When markets contract, the erstwhile top performers push into red for extended period of time causing large drawdowns and emotional pain.
The India 30 Index is based on the above extreme reversion idea i.e. outliers tend to reverse, which suggests that investing is about value picking and extremes are prone to reversion. Our Index extends and fine tunes the idea first mooted by De Bondt and Thaler in their 1981 paper suggesting that 3 year worst losers portfolio tends to outperform the 3 year best winners portfolio.
Coverage India: CNX100, BSE500 traded stocks and Indian Indices.
Ayushi has done her masters in economics from Delhi School of Economics and then completed her Post-Graduation in Finance from National Institute of Securities Markets. She completed her graduation in Economics from Lady Shri Ram College. A keen econometrician, Ayushi enjoys financial modeling and risk management.