Mid Cap Stocks offer better buying opportunity for investors with a risk appetite

Since March this year markets have rebounded very smartly and nearly all sectors and segments have performed better than expected. However, a careful analysis of the different segments reveals some interesting observations. While Nifty and Sensex have retraced nearly 70% from their March lows, NSE Mid Cap, small cap and BSE 500 have retraced only about 62% from their trough. Usually any bull market creates more froth in the mid and small cap rather than the large cap space. Going by that analogy mid caps have more room on the upside as we progress further. Also in terms of valuations and potential growth opportunities there are more exciting ideas in the mid and small cap space. As we go into the next leg of this bull market these stock specific ideas are likely to be played out. Investors having a reasonable holding period and a penchant for risk may like to buy quality mid caps. Holding period may be fairly long as not all mid caps participate in any particular leg of a bull market. Also the past indicators may not hold true in future and it is possible to have a bull market where the action remains restricted to the large caps only. We are living in uncertain times and the last two years have proved that no predictions either on the positive or negative side seem to be coming true. Hence should this bull market end much earlier than anticipated, the potential damage for an investor going in for mid and small caps will be far more than someone who restricts his investments to front line stocks only. While stock picking may appear to be a bright idea at this stage, investors may do well to keep in mind the risks involved.