Mid-cap indices and funds have shown lower volatility and higher returns compared with large cap indices and funds says a study conducted by the ratings agency
Ratings agency CRISIL has said mid-cap equities not only provided higher returns compared with large-cap stocks over longer period, but shares in mid-caps were also less volatile.
The CNX Midcap Index returned 23% annualised returns over the 10-year period ending March 2013, while the CNX Nifty Index returned 19%. Volatility (risk) measured by standard deviation for the CNX Midcap Index was also lower at 25% compared to over 26% for the CNX Nifty Index. Even over other periods of analysis, viz., three, five and seven years, the mid-cap index was less volatile while it outperformed the CNX Nifty Index over a five year time-frame, CRISIL said.
CRISIL Research also looked at the past 10 calendar years to test the consistency of this hypothesis. Over this period, the CNX Midcap Index has outperformed the CNX Nifty Index in six out of 10 years. On the volatility front, the mid-cap index has been less volatile in 50% of the observed instances, especially from 2007 onwards. In other periods too, the difference in volatility between the two indices was marginal.
According to a study conducted by the ratings agency, mutual funds too displayed similar traits. Small and mid-cap equity funds were less volatile than large-cap funds across three, five and seven-year timeframes. The former also generated higher returns over multiple periods, the study said.
Another observation from the CRISIL study was that while the small and mid-cap category outperformed, not all individual funds gave higher returns. The difference in returns between the best and worst performing fund varied from 7% in the 10-year period to 19% in the three-year period, thus reiterating the need for investors to make well-researched investment decisions.
Mukesh Agarwal, president, CRISIL Research, said, “The study also evaluated the reasons behind this trend. Firstly, the CNX Midcap Index is more diversified vis-à-vis the CNX Nifty Index at both sector and stock levels. While the CNX Midcap Index has exposure to 29 industries, the CNX Nifty Index constitutes 17 industries. In terms of concentration, there are only four industries with more than 5% exposure in the mid-cap index compared to nine for the CNX Nifty Index. Greater diversification and lower concentration help lower the risk for the CNX Midcap Index. Secondly, the CNX Midcap Index has a 23% allocation to defensive sectors (which are less volatile) such as consumer staples and pharmaceuticals, while the CNX Nifty Index has 10% allocation to these sectors.”
The indices are making a valiant effort to rally. A close above 6,135 on the Nifty will be required for stronger upward momentum
Continuing its gains for the third straight day, the market closed higher on support from oil & gas, auto and PSU stocks. The indices are making a valiant effort to rally. A close above 6,135 on the Nifty will be required for stronger upward momentum. The National Stock Exchange (NSE) reported a volume of 49.07 crore shares and advance-decline ratio of 736:684.
The domestic market opened with marginal gains in the absence of any fresh triggers. In the Asian pack, the Nikkei 225 was up on a weakening yen, which boosted the outlook for exporters. Barring the Taiwan Weighted, all other indices in the region were seen marginally higher. Markets in the US and the UK were closed on Monday for a local holiday.
The Nifty resumed trade at 6,086, up three points over its previous close, and the Sensex rose 25 points to 20,056. Buying in PSU, oil & gas, metal, healthcare and technology stocks saw the indices gaining momentum in the first hour of trade. The gains were short-lived as selling pressure amid intense volatility led the benchmarks trending lower in subsequent trade.
The market touched its lows in the mid-morning session on selling pressure from auto, capital goods and banking stocks. The Nifty fell to 6,055 and the Sensex retracted to 19,963 at their respective lows.
The benchmarks were range-bound in the negative terrain in trade that followed in the absence of any domestic trigger. However, a positive opening of the key European markets boosted investor sentiment here, pushing the indices higher in noon trade.
The market hit its high at around 2.00pm on buying support from oil &gas, power, fast moving consumer goods and realty sectors. At this point the Nifty went up to 6,128 and the Sensex rose to 20,210.
Volatility continued till the end of the trading session with the benchmarks coming off the highs, but settling in the positive for the third consecutive day.
The Nifty closed 28 points (0.46%) higher at 6,111 and the Sensex ended trade at 20,161, a gain of 130 points (0.65%).
Among the broader indices, the BSE Mid-cap index gained 0.60% and the BSE Small-cap index advanced 0.48%.
Barring the BSE Healthcare (down 0.68%) and BSE Bankex (down 0.05%) all other sectoral indices settled higher. The top gainers were BSE Oil & Gas (up 1.65%); BSE Auto (up 1.33%); BSE PSU (up 1.23%); BSE Consumer Durables (up 1.15%) and BSE Power (up 1.12%).
Out of the 30 stocks on the Sensex, 19 settled higher. The major gainers were Hero MotoCorp (up 5.09%); BHEL (up 3.30%); Coal India (up 3.01%); Mahindra & Mahindra (up 2.22%) and ONGC (up 1.94%). The key losers were Sun Pharmaceutical Industries (down 1.90%); State Bank of India (down 1.45%); Sterlite Industries (down 1.40%); Cipla (down 1.18%) and HDFC (down 0.83%).
The top two A Group gainers on the BSE were—Financial Technologies India (up 6.24%) and Gujarat Minerals Development Corporation (up 5.88%).
The top two A Group losers on the BSE were—United Spirits (down 2.69%) and Wockhardt (down 2.43%).
The top two B Group gainers on the BSE were—Chaman Lal Setia Exports (up 20%) and Mudra Lifestyle (up 20%).
The top two B Group losers on the BSE were—Manjeera Constructions (down 19.92%) and Krypton Industries (down 18.99%).
Of the 50 stocks on the Nifty, 27 ended in the in the green. The main gainers were Hero MotoCorp (up 6.99%); Jaiprakash Associates (up 4.20%); BHEL (up 3.58%); Coal India (up 2.93%) and M&M (up 2.50%). The major losers were Ranbaxy Laboratories (down 2.67%); UltraTech Cement Company (down 1.96%); Kotak Mahindra Bank (down 1.79%); SBI (down 1.56%) and Sesa Goa (down 1.53%).
Markets in Asia, with the exception of the Taiwan Weighted, settled in the green on optimism as the weakening yen boosted the prospects for Japanese exporters. On the other hand, Chinese premier Li Keqiang cautioned that huge challenges would lead to slower economic growth.
The Shanghai Composite surged 1.23%; the Hang Seng advanced 1.05%; the Jakarta Composite climbed 1.79%; the KLSE Composite gained 0.51%; the Nikkei 225 advanced 1.20%; the Straits Times rose 0.44% and the Seoul Composite settled 0.32% higher. Bucking the trend, the Taiwan Weighted lost 1.21%.
At the time of writing, the key European indices were up between 1.13% and 1.63% and the US stock futures were in the green, indicating a positive opening for US stocks later in the day.
Back home, foreign institutional investors were net buyers of stocks totalling Rs406.03 crore on Monday. On the other hand, domestic institutional investors were net sellers of equities amounting to Rs516.39 crore.
Adani Power today said it has raised more than Rs2,500 crore through issue of shares on preferential basis to two promoter group entities. More than 478 million shares have been allotted to promoter group entities—Adani Enterprises and Vinod S Adani. Each scrip was priced at Rs 53.11, according to a regulatory filing. The stock declined 0.86% to close at Rs57.35 on the NSE.
HDFC Bank conducted a full-fledged Business Continuity Plan (BCP) drill during which it processed a record 1,61,373 instruments worth Rs 1,130 crore in a single day in Ahmedabad. The exercise was carried out recently under the guidance of the Reserve Bank of India (RBI) to check the readiness and manual processing capacity of its back-up centre, in case of any disruption in the electronic clearing system in the future, the bank said in a statement. The stock fell 0.40% to close at Rs712.20 on the NSE.
Electrical equipment maker Havells India today reported 19.84% increase in its net profit for the fourth quarter ended 31 March 2013 at Rs109.68 crore compared to Rs91.52 crore in the same period of the previous fiscal. Net income from operations stood at Rs1,169.6 crore during the period under review against Rs1,046.68 crore. The stock climbed 2.86% to close at Rs717.50 crore on the NSE.
According to India Ratings & Research, due to the current price levels of most commodities, a significant, sustained price correction is unlikely and thus the impact of recent price correction will be limited
India Ratings & Research (Ind-Ra) said it believes that the recent commodity price correction will have a limited impact on BSE 500 corporates. Additionally, given the current price levels of most commodities, a significant, a sustained price correction is unlikely.
According to the ratings agency, crude and its derivatives, metals, coal and agri-commodities can affect Indian corporates.
Crude and its derivatives
Ind-Ra said, the combined effect of a crude price rise (in US dollar terms) and rupee depreciation shaved off 4 percentage points on an average from the EBITDA margin of the corporates which use crude derivatives. These sectors are paints, plastics and lubricants. With the average crude price declining to $103 per bbl in FY13 from $107 per barrel (bbl) in FY12, these sectors have enjoyed some benefit to their margins. However, FY14 margins are unlikely to improve over the margins in Q4FY13.
On an annualised basis, the prices of crude and metals such as aluminium, nickel and steel are not likely to decline significantly from the current levels. Indian corporates who are the buyers of such metals would receive much limited benefit from the price correction. Owing to depreciating Indian rupee and physical premium, metal buyers generally receive at best half of the price correction benefits. The capital goods sector would be the highest beneficiary of these corrections. Other metal users such as auto, auto ancillary are likely to have limited benefit.
The current price of aluminium and nickel is at or below the respective 90th percentile marginal cost of production. However, potential for further price corrections remains for some base metals such as lead/zinc, copper, prices of which are currently 8%-12% above the marginal cost of production, Ind-Ra said.
According to the ratings agency, if the Indian rupee remains stable and coal prices fall further by another $10, which is likely, the earnings before interest, taxes, depreciation and amortization (EBITDA) of power generators may expand by 14% to 16%. For cement producers, a similar fall in coal prices may translate into a saving of around Rs2 per bag.
Key agriculture-based commodities considered by Ind-Ra are foodgrain for FMCG companies, sugar and edible oil for the food processing industry, rubber for tyre manufacturers and wood pulp for paper and newsprint industries. Most agri-commodities with the exception of grains and edible oils showed a price correction during March-September 2011. However, the secondary users of these commodities could not accrue the benefits of falling raw material prices in FY12 in the face of muted demand which has increased competitive intensity.
According to the ratings agency key beneficiaries of agri-commodities price correction are likely to be tea and coffee processors and tyre manufactures. FMCG companies in the food sectors may receive limited benefit driven by challenging volume growth and enhanced competitive pressure.