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Thing To Watch While Investing In Mid-Cap Stocks

There are many things about the stock market that investors don't care to know. In fact, as an investor, it sometimes helps to disregard some news and information which doesn't add any value to your investing. Let me tell you, there is a lot out there that you can disregard. Financial news channels, news portals, financial newspapers do their best to give you useless information. Things like the repercussions of French elections on your investment or how Fed Rate hike can affect your investment, etc.

However, there are some things which you can't afford to miss. Things like what stocks you are buying, why are you buying them, what are your expectations from these stocks. These are the important questions every investor needs to ask him/herself before investing. You will be surprised to learn that most of the investors, don't even think about these things before investing.

Midcap Stocks - The Wealth Builders

The last couple of years has seen a meteoric rise of the mid-cap stocks. The mid-cap indices have had such a glorious run that it has outperformed even the benchmark BSE index in terms of growth. In this period the mid-cap stocks have created fortunes for many investors and they still have the potential to do it all over again. So, all is neat and fine about midcaps?

Nope. Here comes the cautionary note: The midcaps are riskier compared to large-cap (Blue-chip) stocks. Thus, they pose a big risk to your capital. Investors need to check their investment on the regular basis in order to ensure their capital is intact and moving in right direction.

Why Choose Midcaps?

Midcaps offer uncapped growth. Some of the midcap stocks are the companies which are growing rapidly and their growth translates into the growth of their stocks. Good upside in a short period is one of the most attractive facets of the midcap stocks.

Another important reason for midcap's popularity is that there is a huge possibility of finding undervalued stocks. Stocks that have good fundamentals and over the period of time can become multibaggers. Many of the celebrity investors have made their fortune by investing in midcap stocks. One look at Rakesh Jhunjhunwala's portfolio will tell you why he speaks so highly of the midcap stocks. Most of his holdings are midcap stocks.

The Downside Of Midcaps

The thing that makes midcaps so exciting is the same thing that makes it the most vulnerable - extreme volatility. The investors need to have a massive risk appetite to invest in the midcap stocks. There are many stocks today which once were promising midcaps but not lie at the bottom as penny stocks. To avoid this it’s essential to analyse the growth potential of the stocks in a detailed and analytical manner.

How To Choose The Right Stocks?

As a responsible investor, it's your duty to ensure that you are putting your money in stocks which promise decent upside and have good businesses with competent promoters. Here are some of the must-dos of stock analysis which you need to look at before entering any stock.

a) The Nature Of Business - It's the most critical part of the stock analysis. Try to understand the nature of the business of the stock you are investing in. It's products, it's peers, it's present and future demand, etc. This exercise will give you a sense of various things like the vision of the company through which you can positively interpret the future growth of the company.

b) Historic Data - Every company maintains its books of accounts which are accessible to all the investors. To understand the growth potential (future course) of the company it's important to understand its past and present. There are stories that master investors like Warren Buffett and Rakesh Jhunjhunwala spend their maximum time in perusing the balance sheets and profit and loss statements of the company they are going invest in. On the stock front, investors have to take into account details like return on equity, dividend yield, return on capital employed, free cash flow, etc. These are the indicators which tell you whether to buy the stock or not.

Does that sound like too much of work? Well, it is. To get your hands on goods stocks you have to invest time in the tedious process of stock analysis. For working professionals, it's impossible to invest so much time and energy. Besides, it's a work of skills which not everybody possesses. In such scenarios, it pays to go for options like stock advisory firms which help investors to identify undervalued stocks and also provide timely entry and exit calls. Midcap stocks are known to be wealth builders, if you tread cautiously there is a fair chance you will get to experience the handsome returns on midcap stocks.

Source : Niveza India Pvt Ltd.


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