Renewed interest in select mid-caps

Positive news flow, strong quarterly results, and in some cases buying for the heck of it, boosted some small-cap and mid-cap stocks last fortnight (between 27 October and 10 November).

Some top gainers from the A group in the small-cap and mid-cap segment were Jaiprakash Associates (up 40% to Rs 638.25), Sterling Biotech (up 20.9% to Rs 146.75), Apollo Hospitals (up 20.6% to 537.70), Punj Lloyd (up 19.6% to Rs 925), Sun TV (up 18% to Rs 1424.35), HCL Infosystems (up 17.5% to Rs 158.30), GMR Infrastructure (up 15% to Rs 352.90) and Balaji Telefilms (up 14% to Rs 164).

A whopping 95 scrips from the B1 group rose between 10 -50%; UTV Software advanced 50% to Rs 267.40. Other top gainers were India Infoline (up 46.7% to Rs 288.20), TV 18 India (up 32% to Rs 932.25), Solectron Centum Electronics (up 30.8% to Rs 247.05), Jain Irrigation (up 25% to Rs 362.10) and KEC International (up 25% to Rs 382).

The trigger for the rally in Jaiprakash Associates was a court ruling which paved the way for a major land development project by the company in Uttar Pradesh. Punj Lloyd surged after it won three very large construction contracts, whereas Sun TV spurted after it announced pay rates for its flagship channel.

UTV Software surged even as the company termed media reports on News Corp eyeing a sizable stake in it, baseless. Solectron Centum Electronics was the centre of attraction after the company announced a restructuring of its services and products portfolio, transferring the services division to a separate company. Robust Q2 results boosted transmission towers maker KEC International.

A section of the market feels that valuations of small-cap and mid-cap stocks have become attractive vis-à-vis large-cap stocks, thanks to gains in the latter. While large-cap stocks have surged, a host of small-cap and mid-cap stocks are still away from their lifetime highs of May 2006.

What happened was a sharp fall in small-cap and mid-cap shares, when the market declined sharply in May 2006. But when the market staged a solid rebound since late-July 2006, it was select large-cap stocks which led the rally. Many small-cap and mid-cap stocks, although on the road to recovery, were not as prolific as the large-cap ones. The BSE Small-Cap index, currently at 6,504.60 (10 November), is quite far from its lifetime closing high of 7,812.84 of 10 May 2006. The BSE Mid-Cap index at current 5,596.21, is off its all-time closing high of 6,033.20 of 10 May 2006. The Sensex settled at a lifetime closing high of 13,282.91 on 10 November 2006.