By Ajaya SharmaIf the first sign of a rebound in the domestic equity market is tempting you to think of value hunting in midcaps, hold your horses.
The pain in that space is not over yet.
Or, so say six market veterans that ETNOW spoke to understand what is causing the mayhem in midcaps and how long might it last.Prominent values investors like Mukul Agarwal, Rajeev Khanna (who manages the portfolio of Dolly Khanna), Basant Maheshwari, Vijay Kedia, Ashish Chugh and Porinju Veliyath, all agreed on one point: Don't rush to buy these fallen angels; there is some time left before you can get back in.While some of them were of the view that the worst for midcaps may be mostly behind us, they insisted that only those companies which have solid business models in place will rebound quickly, while others may not recover for a long time.The market veterans broadly agreed that select stocks from the midcap, smallcap segments had reached bubble valuations, which led to the mayhem.Midcaps will remain volatile for at least six months more, said one of them.
Money will eventually start coming back in after that.Select midcaps showed a tendency to rebound in Dalal Street's latest attempt to bounce back.
But the participants of this survey said such a bounceback in the midcaps is not sustainable."One more round of selling is not ruled out.
The underperformance in midcaps could last one or two years.
Elections will be the next big trigger for the market.
The market has not built in a scenario of Modi not being able to come back," said one of the participants.The participants of the survey barred quoting them individually.One participants felt a five-month correction in midcaps and smallcaps is no big deal after they created massive wealth over past five years.
"The midcaps that are down in the dumps currently will be the ones that will create big wealth in the long run."The market mavens were near-unanimous in their views that margin pressure and forced selling led to deep pain in select pockets of the market.
"Several good stocks have fallen to PE levels in single digits, which has created an opportunity.
There would be churning and reshuffling of names with quality earnings."Another view was that there is value emerging in select midcaps and soon there will be a time when one would be able to start building positions gradually.However, one should be vigilant and use sharp downturns to buy selectively.
"Election volatility we are going to see in the coming months will be great opportunity to get into quality midcaps," they said.