Nifty Midcap 100 hits new high; experts see 25% rally

Technical analysts expect a 25% rally in the index in the next 12 months as its faster retracement signifies structural improvement, which would add fuel to accelerate the upward momentum.

The index has gained 5% in the last six months and 20% in the last one year compared to Nifty’s -1.7% and 12% returns during these periods. The ratio line of the Nifty Midcap 100 to Nifty 500 index has also recorded a breakout from five years of consolidation. This, according to analysts, indicates an acceleration of upward momentum in the broader market.

During 2014, such a long consolidation breakout on the ratio line resulted in a 25% rally in the next 12 months.

Analysts expect the midcap index to maintain the same rhythm in the current scenario.

“We expect the midcap index to witness a 25% rally in coming 3-4 quarters being the measuring implication of 18 months consolidation breakout. Meanwhile, the next milestone for the midcap index is at 36,600,” said Dharmesh Shah, AVP-technical at ICICI Securities.

“Currently, 65% of Nifty Midcap 100 stocks are trading above the 200-day simple moving average, which is still way off from its overbought conditions placed around 85, indicating there is a lot of steam left in the current leg of the up-move,” he added.

The midcap index has retraced the past four months’ decline in just two months and recorded a new high. The index currently trades at a one-year forward price to earnings of 23.88 times compared to five year average of 28.58.

Stocks such as REC, Indian Bank, PB Fintech, Oil India, Power Finance Corporation, Poonawalla Fincorp, NHPC, Union Bank of India, Indraprastha Gas, Shriram Finance, and Navin Fluorine, among others, are currently trading over 5% from their 200-day moving averages and can give 11-30% returns in the next one year, according to Bloomberg consensus estimates.

“Nifty Midcap 100 has given a fresh breakout on weekly as well as monthly charts and is heading for 36,000-38,000 level in coming weeks,” said Arpan Shah, senior research analyst at Monarch Networth Capital. “The safest way to play this upside is to buy Index ETF (Motilal Oswal Midcap 100 ETF), trading at ₹36 level and heading to ₹38-41 level in coming weeks.”

Shah suggests adding stocks like Max Health and United Breweries at the current levels and stocks like Tata Elxsi, Cummins, and Aditya Birla Capital on the dips.

KPIT Technologies, Elgi Equipment, KEC, Bharat Dynamics, Birla Corp, Birla Soft, Canfin Homes, Cochin Shipyard, Exide Industries, Radico Khaitan, Tejas Network, and Vardhaman Textile are some of the stocks recommended by Dharmesh Shah of ICICI Securities.