India Mid-cap funds: Good for the long-term

By Vipin Agnihotri

Mid-cap funds have lagged behind in the last few months, but in my opinion they are poised to perform over the long term. It is worth mentioning in this regard that over the last year, the BSE Mid- Cap index returns a handsome 28.5 per cent as compared to the 21.5 per cent of the large-cap dominated Sensex.

Point to be noted here is that short-term may not treat the mid-caps stocks too well. If experts are to be believed, they could meander and, in a sell off, even fall quicker than the large caps despite having already dropped some. It has come into the notice of The India Street that some fund managers are worried about entering mid-caps now, as there is still lot of simmering below the surface.

Large Caps to Bounce Back?

Most of the fund managers are of the opinion that the first stocks to bounce back will be the large caps and then the mid caps. In that scenario, it is better to bet on large caps. Some of the fund managers feel that pressures could mount on mid and small cap stocks due to local or international developments.

No one will argue with the fact that the Indian economy is on a firm growth track, as a result smaller companies can scale up quicker and clock better growth rates. On the other hand, the mid-caps may toss for a while longer, there is the quicker growth story that makes them look attractive relative to the larger-cap companies.

In terms of statistic, the mid-cap funds have outperformed the diversified funds this year. Of the total 21 mid-cap funds, 15 funds have outperformed Sensex. Compared to diversified funds, only 135 funds of the 237 funds have beaten the benchmark Sensex. In my opinion, future looks bright if you can ignore some of the excess of the market in the short-term.

Remember, present day small and mid-cap companies are going to be tomorrow’s large cap. The best part about mid-cap funds is that you don’t chase momentum. All in all, investing in mid-cap funds should be on the philosophy of fill it, shut it and forget it.”

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