IRFC, Suzlon Energy, Kalyan Jewellers, Mazagon Dock shares: 100% AMFI upgrades to come from cyclical sectors?

The upgrades from midcap to largecap category, and from smallcap to midcap category, in the forthcoming AMFI list of market categorisation may come primarily from cyclical and capital-intensive sectors, ICICI Securities said in its latest strategy note. The list may include PSUs, financials, industrials and consumer discretionary stocks, which may see significant improvement in market cap size rankings, the brokerage said.

Mazagon Dock Shipbuilders Ltd, Suzlon Energy Ltd and KEI Industries Ltd from industrials, Lloyds Metals from metals, SJVN from utilities and Kalyan Jewellers Ltd from consumer discretionary are likely to be upgraded to midcap category from smallcap category, as per ICICI Securities.

Companies such as PFC, IRFC, Shriram Finance and REC Ltd from financial services, Union Bank of India Ltd and Indian Overseas Bank (IOB) from banking, Macrotech Developers from real estate and Polycab India are likely to be upgraded to largecap from midcap category the brokerage said.

"100% of the upgrades from small to mid, and mid to large cap are likely to be driven by cyclical stocks. Consequently, the upper threshold of market cap size for smallcap stocks is approaching an all-time high of $3 billion, which is above the global size interval considered for small caps ($300 million to $2 billion). Based on current market cap, around 58 stocks which are likely to get classified as small caps will have a market cap of over $2 billion, ICICI Securities said.

The brokerage added that upper threshold for midcap shares have risen to $8.4 billion and for large caps stood at $205 billion.

ICICI Securities said mid, small and micro-cap valuations continue to be in a historically unattractive valuation zone relative to large caps, although their growth expectations remain relatively higher.

"Empirical evidence indicates that such unattractive valuations can be sustained in a bull market environment, if growth outlook remains positive," it said.

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