While investing in equity, investors are often confused about the size of the companies to invest in. Due to the introductory or narrow segment of business models, public ownerships of midcap companies are relatively low. Irrespective of market scenario, there would often be some segments in midcaps that may grow at a different pace compared to the whole market and economy. Now from an investor’s perspective, how to figure which midcap companies are good for you? Why should you consider midcap stocks? Let’s learn 5 key characteristics of quality midcap stocks.
High growth potential
Stock market has been raising hopes for long term investment ideology for past few years. Since India is one of the best destinations to invest in, Indian midcap companies have been performing well in the adaptive and progressive environment. Midcap companies which possess high growth potential are likely to turn into large cap companies in the upcoming years.
Moderate Price
Midcap companies often possess high risk as well as high return potential in the long run. So having a portfolio consisting of such companies makes them a valuable possession.Since midcap companies are relatively undervalued, it may be beneficial to invest in such companies for a long term wealth creation.
Risk
At times it gets difficult to anticipate about the growth of midcap companies since they are under researched. The information on these segments becomes critical to analyse growth potential of the companies. Thanks to internet in the modern world that helps you learn and track the performance of midcap companies, at least to a certain extent! Midcap companies have considerably higher risk involved than that of major large cap established stocks. While investing in midcap, it is essential to understand the quality of business and management of the companies. For example, a midcap company of new technology or a unique product proposition can show a high risk vs returns ratio.
Quality management
Quality management is an eccentric characteristic of quality midcap companies. They are the ones who drive the company’s growth by making the evaluative and transformative decisions. In a long run, the integrity, competence and growth mindset of the management are 3 important aspects to look at. It is an art, rather than science, to assess the quality of management. It is wiser to invest in midcaps with an excellent management which has a good track record because growth is a continuous process.
Hidden treasures
Midcap companies have a limited analyst data and coverage that is sometimes insufficient to analyze the potential of the company for a long span of about 10 years. On the other hand, the share prices of the midcap companies are generally undervalued. If you own quality midcap stocks for 10 years and the company turns into a largecap company during the period of your possession, the returns from such stocks will be far greater. This is the magic of value investing! Yes, it’s difficult to find the gems in the market but quality midcaps may turn out to be hidden treasures.
Write to us and let us your feedback on the articles. Share your suggestions of topics and your experiences with us. Do subscribe to our weekly newsletter on this page and receive updates on the new article, events and more. Please share the post to spread knowledge. #HappyInvesting
