In all our previous posts on Midcaps, we had preferred Largecaps over Midcaps.
Historical behaviour , based on the price ratio of Midcaps to Nifty currently, suggests however that we might be entering into a relative BUY territory now. The ratio is currently placed around 1.56x – which is almost midway between its lows of 1.08 and highs of 2.08 – and typically wouldn’t mean a trade (as its placed on an average which can go either way).
However, the placement of the ratio versus Bollinger bands shows at least a temporary (6-12 month) reversal if not a longer term rally like the 2014 onward trend. The chart below (Monthly) shows the first evidence on the MACD as well as Bollinger.
We believe therefore that a potential sharp outperformance by Midcaps may well be ahead.
Unless this chart is brutally violated- unlikely-, the year ahead has a very high probability of Midcap outperformance! Its surely looking therefore a good time to now start accumulating quality midcaps aggressively.
Also, one may be fooled by the Nifty movements- Our hypothesis is that we may see Nifty remainining rangebound while Midcaps rally – in a complete reversal of the previous years behavior.