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Equity markets have been touching all- time highs, but mid-caps continue to slide. While NIFTY touched a record high of 11,172 points today, the S&P BSE MidCap index has already fallen by 11.7% so far this year. This was after a stellar run in 2017. Should investors invest in mid-cap funds now, is it a good time? Or do you see more pain in this segment? 

Vinod Jain, Principal Advisor, Jain Investment Planner Pvt Ltd 

We have seen sharp contrast in performance of large companies vis-a-vis mid-sized companies. Companies like HDFC Bank, HDFC, Kotak Bank, HUL, TCS, Infosys and Reliance contributed to strong performance by Nifty while most of the mid-sized companies witnessed sharp price correction. We have seen more than 20%+ divergence between performance of large-cap over mid-cap which by far is the biggest divergence in past four years. Most of the market participants are lacking confidence even at market high. Rupee depreciation, commodity price rise, interest rate rise, election uncertainty and global market volatility is getting factored-in. Investors at large are losing faith over short term prospects of market. 

It seems that markets have completely factored in negatives and hence many stocks have fallen more than 30 to 70% in past five months. Majority of investors including institutional investors are running for safety by investing in known favourites. Investors are preferring good balance sheet and good P&L over their stressed counterparts. Market participants are losing long sight and focusing on short term challenges. These are excellent times for people who wants to enter equity markets. The situation now is similar to 2013 where weak currency and weak markets had provided excellent entry points for long term investors. It’s time to take advantage and buy into good midcap after recent sharp correction. Investments made during distress conditions will always create durable wealth for investors. 

Ravi Kumar T V, Director, Gaining Ground Investment Services 

Over the last six months, though the Nifty index has moved up, the midcap index has fallen by over 11.7%. When you look back in the last year, first it was greed and now it is fear. It's definitely a good time to invest in mid-cap funds. Few stocks in the index have pushed the index to record high which I think is a freakish moment which happens once in few years. The fear factor over the last few months have made investors to move to safety and large caps. It is difficult to forecast whether there is further pain in the midcaps. 

Having said this, I think many quality midcap funds have fallen less than 10%. Investors should stick to good growth-oriented midcap funds which have delivered consistent returns over the long term. The much awaited earnings in the midcap companies now showing up and the upcoming reforms should auger well for the midcap funds to give good returns. Investors should choose midcap funds for their long term goals and should not invest for short term. The pre-election years haven't been good for equities and this fear should be capitalised to invest in midcap funds gradually. I think one should consider investing from now to December in good midcap funds using the systematic transfer plan route. 

Nithin Sasikumar, co-founder and head-research, Investography Ltd 

While the Nifty and the Sensex have been hitting record highs, delving beyond the headline numbers reveals that a significant part of this move has been driven only by 4-5 stocks implying that the market is becoming narrower (unlike 2017). And this has led to large-cap mutual funds underperforming their benchmark indices. So, investors may not necessarily be fully participating in this rally. 

Mid & small caps were due for a correction as valuations had continued to befuddle us over the past couple of years. In the 2000s, a 20% correction was normal even if the calendar year returns were 15-25%. However, the environment after the global finance crisis saw increasing liquidity and falling volatility. New entrants into the markets have not experienced these bouts of volatility which has added to their worry. 

Even though sentiment has turned from euphoria to uncertainty, valuations are still not in line with fundamentals and could prolong the pain in midcaps for few more months. However, equity investments must be for a minimum of 5 years and for investors who’re opting for the SIP route, they should keep investing into mid-cap funds. For investors with a one-time investment, they could stagger their investments over a one-year period – and as they say’ buy the dips’. 

Aashish P. Somaiyaa, Director and Chief Executive Officer, Motilal Oswal Asset Management Company Limited

We believe that the move into large caps through 2018 has been a relative value in some cases or a contrarian rotation call in some cases. Further, it is very lopsided in favour of select stocks which have already run up, while on a wider array we don’t see many pockets of attractive corporate growth.

But small and mid caps have suffered after a secular run-up over the last 2-3 years, followed by a correction this year. That’s natural. Change in macro fundamentals like interest rates, oil prices and other input costs plus technical factors like mutual funds’ portfolio rotation post regulatory changes, introduction of ASM, margin increases have resulted in indiscriminate meltdown in the small- and mid-cap space. There is huge potential in the space for well-researched stock picking. Keeping in mind recent developments, select small and mid-caps have become valuable over the past few months.

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