New Entries in Mid Cap Category Downgraded from Large Cap Category

Introduction

In this article, we are going to analyse 6 Large Cap stocks demoted to Mid Cap list from Large Cap list as per the recent recategorization of companies by SEBI on 30th June, 2019.

6 Large Cap Stocks Demoted to Mid Cap List

As per the categorization done by SEBI, Top 100 ranked companies are Large Cap companies, ranking from 101 to 250 are Mid Cap Companies and ranking above 250 are the Small Cap Companies. The ranking is according to the Market Capitalisation of these companies. Where, Market Capitalisation = No. of Shares Issued * Current Share Price

In our earlier article, we have seen there are 6 new entries of Midcap stocks upgraded to largecap list, as per the recent recategorization of stocks by SEBI on June 30, 2019. It means there are 6 Largecap stocks which must be demoted/ downgraded to Mid Cap list from Large Cap list.

 6 Large Cap Stocks Demoted to Mid Cap List
6 Large Cap Stocks Demoted to Mid Cap List

Lets see 4 Large Cap stocks in detail out of total 6 demoted stocks. These 4 stocks are selected according their long-term business proposition/ growth, long-term investment horizon etc. Though these 4 stocks are going through a turbulent phase currently due to aggressive negative reactions by the market, but a good earning visibility is seen for these 4 stocks in coming years. Out total 6 stocks, you can keep below 4 stocks in radar for long-term investment.

1.L&T Finance Holdings Ltd

  • The company is promoted by Larsen & Toubro Limited, one of the leading companies in India, with interests in engineering, construction, electrical and electronics manufacturing and services, information technology and financial services. L&T Finance Holdings Ltd. is a holding company of L&T for its financial services business.
  • The company is offering a diverse range of financial products and services across the corporate, retail and infrastructure finance sectors, as well as mutual fund products and investment management services, through its direct and indirect wholly-owned subsidiaries. 
  • L&T Finance Holdings Ltd stock has gone through a correction over last 12 months. What could be the reasons behind it?
  • The main reason is its exposure towrads IL&FS group. It was having around Rs.1,800 Cr exposure in IL&FS group and its subsidiary companies. Repayments of around Rs.1,600 Cr allocation of L&T finance Holdings couldn’t get fulfilled from the IL&FS subsidiary companies. As per the ruling by NCLT, IL&FS subsidiary companies was not suppose to make any payments unless the overall problem arisen from IL&FS crisis gets solved.
  • However, as per the recent updates these loans of IL&FS subsidiary companies are now converted into the green category, which indicates their increased probability of repayment of loans to L&T Finance Holdings in coming quarters. This repayment may get started soon.
  • Thus, the major pain of L&T Finance Holdings will decrease. If this Rs.1,800 Cr was come to be as bad loans and converted to NPAs, then profitability of the company would have been affected adversely. And it would take time for its recovery.
  • But, as the repayments from IL&FS companies are now visible, L&T Finance Holdings can reduce their provisioning numbers. As a result of which, the net profits will improve in coming quarters.
  • Market cap of L&T Finance Holdings has eroded from Rs.29,913 Cr in Dec-18 to Rs.26,670 Cr in June-19. Its ranking has degraded by 8 numbers ie. from rank 95 (Dec-18) to 103 (June-19).
  • The erosion in the market cap of L&T Finance Holdings was mainly due to the sentimental negative reaction by the market on account of their exposure in IL&FS group comoanies.
  • However, there was a good institutional buying from mutual funds for the stock due to its corrected valuation. % Holding of Institutional investors has increased from 2.44% to 2.66%.

2.Ashok Leyland

  • Ashok Leyland has been a major presence in India’s commercial vehicle industry. The company offers wide range of products like buses, trucks, engines, defence and special vehicles etc. We have analysed the comapny in our detailed analysis of stocks.
  • Currently the Auto sector is going through a lot of turbulent phases. In Dec-18, Ashok Leyland stock was at 79th position, with a market cap of Rs.34,503 Cr. Over the span of just 6 months, the stock has demoted to 104th position in June-19 from 79. The market cap is eroded to Rs.25,970 Cr.
  • But, the silver lining in this erosion in market cap is the improved % holding by the institutional investors mainly mutual funds. Mutual funds’ holding has improved from 4.92% in Dec-18 to 6.33% in June-19.

3.Page Industries

  • Page Industries is the exclusive licensee of Jockey International Inc (USA) for manufacture and distribution of the Jockey brand in India.
  • The company has disappointed the investors with its muted growth in the financials from last 2-3 qaurters. Also the company was not ready to dislose its categorywise sales break-up numbers, releasing only net sales numbers. The stock was not delivering the high earnings for its investors in proportion with its high P/E ratio. Both the reasons spread a lot of negativity for the stock in the market.
  • FIIs holdings got considerably reduced from 37.87% in Dec-18 to 34.30% in June-19. While, Mutual funds holdings are improved from 2.77% in Dec-18 to 5.04% in June-19.
  • The market cap of the Page Industries has come down from Rs.32,701 Cr in Dec-18 to Rs.25,164 Cr in June-19. While the ranking was downgraded from 85 to 109 (From Dec-18 to June-19) by 29 positions.

4.MRF

  • MRF is an India-based company engaged in manufacturing, distribution and sales of tyres for various kinds of vehicles. The company is primarily engaged in manufacturing of Rubber products such as Tyres, Tubes, Conveyor belts etc.
  • By Dec-18, MRF was at 99th position according to the market cap, which is now positioned at the rank 111 in June-19 recategorization list. Market cap of MRF is eroded from Rs.29,470 Cr in Dec-18 to Rs.24,588 Cr in June-19. The stock got corrected almost 20% from Dec-18 to June-19.
  • MRF stock belongs to the Auto-ancillary sector. And because of its dependency on the its parent Auto sector, the stock is going through a tough phase due to a consistent decrease in the quarter-on-quarter sales figures in Auto sector. Still, the company is maintaining a consistent record of steady and positive net profit numbers as far as the financials are considered.
  • There is a marginal improvement in FII as well as Insurance companies’ holding in MRF over last 6-months, while Mutual funds are holding around 11% stake in MRF.
  • Thus, we believe that overall sale growth in Automobile industry is very important. Whether it is petrol/diesel/Hybrid/Electric Vehicle sales, tyre company will be benefited from increase in sales numbers of any type of vehicles.

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