BETTING ON POTENTIAL WINNERS

Potential high returns, less volatility and the promise to grow big over time make the mid-cap universe worth exploring

- Narayan Krishnamurthy

Every company listed on the stock market has a different trait-some are steady with their performance, some are volatile and some get into a steady decline with losses. It is always a challenge to find a company which has long-term growth prospects and above-average returns. If one goes by the past, there are many companies that started small and have consistently grown over the years and transformed themselves into large conglomerates, such as Reliance Industries. At the same time, several notable companies have fallen by the wayside from reaching high levels such as Yes Bank.

The top 100 companies fall under the large-cap space. These are well-established entities and are often top performers in their sectors. Savvy investors look for mid-cap companies as these have the potential to produce sharp growth compared to largecap companies. The mid-cap space in the investment universe comprises firms that fall in the top 100 to 250th rank based on market capitalisation. There are also mid-cap focused mutual funds that invest in the same universe and have excelled in recent years.

In a complex and competitive universe of mid-cap opportunities, it is difficult to zero in on specific mid-cap stocks and funds. But, when choosing mid-caps, one could look for companies that are among the fastest growing in their segment and also have a unique niche to take advantage of. They form the sweet spot for investors who are willing to take risks for the possible higher returns. Do not miss the power of a midcap allocation as many in this universe are future large-caps.