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Madhu Kela's Midcap Mantra for investors — make friends with volatility

Madhu Kela, a market veteran, advised investors to take advantage of the volatility in the midcap market as the stocks can be available between 40 and 60 percent.
"This year is going to be volatile and let us not fool ourselves in thinking that we are going to have a repeat in terms of returns in the last two years, where making money was easy. There is going to be a lot of news flow and volatility, both globally and locally.  So, within this volatility when the time comes you have to bite the bullet and be prepared. So, volatility could be your biggest friend because the stock could be available at 40-60 percent discount to the real intrinsic value," Kela advised the investors.
The midcap fall in the market has been massive in the last two-three weeks. He said the jerk in the index does not sustain at lower levels because the defensives and the credible companies have a lot of weightage on the Nifty.
The market has been having a series of volatile sessions in the last two-three weeks. The broader markets on Monday saw high volatility with both the leading indices, the Nifty Midcap index and the Nifty Bank reversing the gains seen in the first half of the day to close flat. The Midcap index closed 6 points lower at 18,825, while the Nifty Bank index rose 2 points to 26,454.
Kela pointed out that 150-200 midcap stocks have lost their market capital by more than 40 percent.  "I find it very hard to envisage the index falling more than 10 percent even after doing all kinds of permutation and combinations, what will lead to fall and how much because there is significant weightage in the index from stalwarts likes HDFC Bank, Kotak Mahindra Bank, IT Companies, FMCG companies etc,” he said.
The quality of management and the earnings predictability is the most important in Midcap investing, he advised investors.
On the economy and state-run banks, he said the liquidity which was induced in the global system in last seven or eight years is coming to an end. So, it is likely that "we see some interest rate hardening, inflation fears etc coming back."
He expects to see significant write-backs of provisions in state-run banks' profit and loss over the next quarters.
Kela is very bullish on Piyush Goyal, the interim finance minister and said there are a lot of opportunities on FinTech stocks.
The pharma companies had a positive fourth-quarter performance where none of the sector companies reported a loss.  Kela said the recent upmove in the pharma companies is more than just a short covering.
Though the pharma companies did not report losses, it faced high operation costs and had few issues with the Food and Drug Administration (USFDA) for approving the manufacturing and selling of the drugs.
Kela said this is because the research and the development expenses have been on the higher side for the pharma companies and said the valuation for these companies have been corrected. He is confident that the pharma firms' issues with the US drug regulator will be resolved in the coming months.
Kela recommends Divis Labs and maintains a positive stance on the stock. "There are a lot of opportunities in select pharma stocks," he said.

Market Movers

CompanyPriceChng%Chng
Shree Cements29,130.50 864.75 3.06
Britannia3,521.65 98.25 2.87
Eicher Motors2,604.00 73.75 2.91
Titan Company1,765.10 50.55 2.95
Adani Ports690.75 16.25 2.41
CompanyPriceChng%Chng
Titan Company1,765.55 51.05 2.98
Reliance2,074.65 39.25 1.93
Axis Bank722.85 13.85 1.95
M&M754.70 11.50 1.55
Infosys1,632.70 22.45 1.39
CompanyPriceChng%Chng
UPL790.65 -17.90 -2.21
Tata Steel1,414.65 -19.65 -1.37
Power Grid Corp170.00 -1.15 -0.67
NTPC117.40 -0.80 -0.68
Tech Mahindra1,203.50 -6.05 -0.50
CompanyPriceChng%Chng
Tata Steel1,414.90 -18.85 -1.31
NTPC117.30 -0.90 -0.76
Power Grid Corp170.00 -1.05 -0.61
Tech Mahindra1,203.60 -5.85 -0.48
Bajaj Finserv14,174.50 -46.80 -0.33

Currency

CompanyPriceChng%Chng
Dollar-Rupee74.3600-0.0500-0.07
Euro-Rupee88.32000.12700.14
Pound-Rupee103.43800.15400.15
Rupee-100 Yen0.6778-0.0009-0.13