Midcap still pricey? Tata Mutual Fund’s look at where to invest now

MidCap shares may have cooled off their peak, but they are still far from a bargain. Satish Mishra, fund manager at TATA Asset Management, is of the opinion that the space remains attractive for long -term investors. From Capex-driven industries to health care and NBFCs, here the fund places its bets and why patience is perhaps the best investment tool at the moment.

Edited fragments from a chat:

MidCaps are again the poster boys of the market. How do you separate sustainable compounders from temporary crowd of favorites while choosing shares?

Sustainable compounders are shares that most, if not all, of the following characteristics: consistent profit growth, high efficiency ratios, a healthy balance, consistent cash flow generation, a sustainable competitive advantage and quality management. Shares with weak fundamentals or pure by stories, on the other hand, are probably favorites in the short term that should be avoided. We build our portfolio on sustainable compounders, provided that valuations are reasonable.

What has the positioning of the Tata Midcap Fund evolved over the past 12-18 months as the ratings extend and the sector rotations increased?

Valuation for the MidCap category has been raised for more than a year. Our investment philosophy is based on GARP (growth at a reasonable price). Last year we again adjusted our portfolio to significantly bring ratings under benchmark levels. We reduced exposure to richly valued sectors such as consumers and IT, and increased allocation to banking and pharmaceutical, where the valuations were more attractive. We have also diversified the portfolio in several sectors to reduce the risk of concentration.

Do you think MidCaps are relatively more attractive in appreciation terms at this stage than small caps?

In absolute terms, both midcaps and small caps act above their long -term averages. MidCap values, however, a year ago ~ 17% fell from their peak. Midcap companies are usually located more than small caps, with stable income and operational resilience. Historically, this has justified their premium over small caps. Given the prospects for profit growth in the medium term, MidCaps remain an attractive investment for a 5-year-old+ horizon.

Which sectors do you find more attractive in the midcap space at this stage?

Three sectors/themes that we are positive about are Capex/Manufacturing, Healthcare and NBFCs. We expect that Capex-oriented sectors such as industrials, capital goods and cement will continue to deliver strong profit growth, supported by favorable local and global factors. Other sectors linked to the production and infrastructure ecosystem, such as Logistics, are also well represented in our portfolio.

Healthcare is another area that we like, because rising disposable incomes and public health care of poor quality stimulate the demand for better private health care services. In NBFCs we expect that margins and credit costs will improve, whereby the valuations remain reasonable.

Have you recently done counter -calls where the market ignores, but you are doubling?

Completely ignored categories are rare, but we strive to be early in collecting positions when sectors are still under pressure, but close to a change. Last year we were overweight during the insurance during a legal headwind and added cement during a delay in economic activity. More recently, we have increased the allocations to NBFCs where concern about uncovered portfolios peak, and we expect the profit to improve in the coming quarters.

How does the income season of the first quarter of the first income for sectors in which you are invested and how did it form your prospects?

Q1FY26 income has been weak but largely in line with expectations. Large sectors such as the, financial, car and consumers have demonstrated muted profit growth, while cement and health care have produced strong results. The trend of Q4FY25 has continued, with total profit growth in the mid-single figures. However, the management commentary of the consumer and bank sectors has been encouraging, indicating that the margin and growth agents can relax. Our portfolio decisions are based on a long -term display, so we usually avoid major changes based on quarterly results.

Do you think that the profit recovery that many expected in Q1 can actually happen in H2FY26?

We believe that profit growth will be stronger in H2FY26 than in H1, although the degree of improvement will be crucial for market performance. Various factors could support this rebound: the Front-Loaded 100-BPS rate reduction of the RBI, RS 1 Lakh Crore in tax reduction announced in the budget and a favorable monsoon all that all should stimulate the growth and consumption of credit views. This would benefit driven sectors such as FMCG, cars, retail, agri inputs and NBFCs in the consumption. We also expect rate -related uncertainty to relieve the end of the year, which should increase the outlook for export -oriented sectors.

Is this the right time for retail investors to enter midcaps, or are Sips still the better gamble than lumpy assignments at these levels?

Midcap values have cooled off their peak but remain raised. Given the global geopolitical and rate tensions, the timing of a lumpy investment is difficult. SIPs help to smooth out the access points, reduce the impact of short-term volatility and to remove emotional decision-making of long-term wealth steadily. For most retail investors, SIPs remain the smarter choice at the current level. For those who opt for lumpy investments, this must be done with a minimum horizon of 5 years.