India's Kotak stops mid-cap recommendations after "irrational" rally

Vedant Fashions

11/09/2023 10:22

BENGALURU, Sept 11 (Reuters) - Kotak Institutional
Equities, on Monday, stopped recommending Indian mid-cap
companies since it could find no stocks, other than a few in the
financial space, with room to rise following the index's
record-breaking rally this year.
    The more domestically focused mid-cap index  .NIFMDCP100 
has hit multiple record highs in its 31% surge so far this year,
which easily outpaced the 10% rise in the benchmark Nifty 50
 .NSEI  index and has prompted warnings of a market correction.
    "The primary driver of the rally appears to be irrational
exuberance among investors, with high-return expectations being
driven by the high returns of the past few months," Kotak
analysts Sanjeev Prasad, Anindya Bhowmik and Sunita Baldawa said
in a note.
    "We see limited point in trying to find fundamental reasons
behind the steep increase in stock prices ..."
    That rally has left most of the 15 stocks in Kotak's model
mid-cap portfolio trading near their 12-month fair values, and
the brokerage said it could not find too many outside the
banking, financial services and insurance (BFSI) space with
decent potential upside. The portfolio has five BFSI stocks.
    "It would be incorrect to recommend stocks with low
conviction and potential downside to our fair values," Kotak
analysts said, arguing that company fundamentals have worsened
in many cases.
    The brokerage said institutional investors' favourites --
like Aditya Birla Fashion  ADIA.NS , Crompton Greaves  CROP.NS ,
Jubilant FoodWorks  JUBI.NS , Voltas  VOLT.NS , TCNS Clothing
 TCNS.NS , Page Industries  PAGE.NS  and Vedant Fashions
 VEDN.NS  -- have been laggards, given the weak consumption
demand.
    It noted that the favourites are in the broader "investment"
sector, like capital goods, defence, railways, real estate,
renewables.
    However, the brokerage cautioned it was not sure about the
quality of these stocks given their historically weak execution
and governance track records.

 (Reporting by Sethuraman NR in Bengaluru; Editing by Savio
D'Souza)
 ((Sethuraman.NR@thomsonreuters.com; (+91 9945291420); Reuters
Messaging: nallur.sethuraman.thomsonreuters.com@reuters.net))