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Foreign brokerages plan to widen mid-cap basket

Jayanta Mallick

According to market observers, within a year, overseas investments are likely to begin in a range of new stocks.

Kolkata , Nov. 2

FOREIGN institutional brokerages, on a prompt from overseas investors, are seriously looking at extending their reach in local mid-cap stocks. Foreign portfolio investments in mid-cap stocks are restricted to a few due to several factors.

First, there's lack of in-house research on the segment. However, some of the top broking firms with large overseas clientele are either building a new team or increasing the strength of existing analytical staff dedicated towards monitoring mid-stocks.

Mr Andrew Holland, Chief Administrative Officer & Executive Vice-President — Research, DSP Merrill Lynch, told Business Line that the firm is recruiting five analysts for mid-cap stocks. "They would form a cell to track mid-cap counters alone for long-term investments. Research on 100 such stocks is the target to begin with," he added.

JM Morgan Stanley and JP Morgan are also among those who are seriously looking forward to advising their overseas clients regarding Indian mid-cap stocks.

According to market observers, within a year, overseas investments are likely to begin in a range of new stocks.

Mr Gul Tekchandani, a stock strategist who has worked with overseas clients for more than 15 years, said mid-cap stocks in the recent bull-run out-performed the frontline stocks at certain stages. This generated strong enquiries from abroad.

"However, absence of enough liquidity is an issue with these counters. Despite visible earnings, growth potential and decent management track record, many in this space could not qualify for portfolio investments simply because their market capitalisation was below the $100-million benchmark for normal overseas investment," he added.

"Some of today's mid-caps hold the potential for emerging as tomorrow's big-caps in terms of growth and valuation. A list of 200 to 250 such companies could be drawn up for long-term investments," said an official of JM Morgan Stanley.

Mr Sameer Lamba, Chief Analyst of JP Morgan, said as the overall liquidity in the market reaches a higher scale, and more overseas investors increase their commitment to Indian equities, the lower liquidity problem is expected to wear off.

Local investment is the key to providing necessary price elevation to the mid-cap stocks. Improvement in corporate governance and promoters' effort to expand the floating stocks are signs of changing environs.

"Overseas investors are ready to buy, provided mid-caps fit the bill. Within a couple of years, a set of mid-caps is expected to define a clear trend," Mr Tekchandani added.

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