Kotak Equity Research in a Report said,
Mid and small-caps have experienced slow business, tight liquidity and SEBI norms, which impacted their valuation and growth in the last one year. Post correction in Mid-cap stocks in FY19, from high of 25x on Fw PE the Mid Cap Index is now at trading at 14.9x FY20E. The midcaps Fw PE now trades at 18% discount to Nifty Fw PE. With improvement in business prospects, falling interest rates, low base effect and expectation of NDA regaining power, we xpect midcaps and small caps to gradually recover and do well in FY20
Even though the Mid Cap Index is trading at 14.9x Fw PE there are many beaten down good quality stocks trading between 10-to-15x on Fw PE multiples. One can focus on mid & small caps having high earnings growth and trading in the 10-to-15x Fw PE band from a long term investment perspective. As a hygiene it would be best to avoid companies where promoters have high pleading of shares.
