Midcap Stocks Still Overvalued? Tata Mutual Fund's Investment Strategy for Long-Term Growth

Satish Mishra, Fund Manager at Tata Asset Management, believes midcap stocks remain attractive despite cooling off from their peak. The fund is placing bets on capex-driven industrials, healthcare, and NBFCs. Mishra emphasizes the importance of sustainable compounders with consistent earnings growth and high return ratios. Valuations for midcaps have fallen 17% from their peak a year ago, but remain above long-term averages. The fund has realigned its portfolio to bring valuations in line with benchmark levels, reducing exposure to consumer and IT sectors and increasing allocation to banking and pharma.

Midcap stocks, while cooling off from their peak, remain attractive for long-term investors, according to Satish Mishra, Fund Manager at Tata Asset Management. The Tata Midcap Fund is positioning itself to capitalize on sectors like capex-driven industrials, healthcare, and NBFCs, emphasizing the importance of sustainable compounders with consistent earnings growth and high return ratios.

Midcap valuations have fallen approximately 17% from their peak a year ago, yet they remain above long-term averages. The fund has realigned its portfolio to bring valuations in line with benchmark levels, reducing exposure to richly valued sectors like consumer and IT, and increasing allocations to banking and pharma [1].

Mishra advises retail investors to consider Systematic Investment Plans (SIPs) over lump-sum investments, given the current volatility and the 5-year+ horizon recommended for midcap investments. SIPs help smooth out entry points and reduce the impact of short-term volatility, building long-term wealth steadily.

The fund's focus on capex-driven industrials, healthcare, and NBFCs is driven by the expectation of strong earnings growth in these sectors. Capex-oriented sectors like industrials, capital goods, and cement are expected to continue delivering robust earnings, supported by favorable local and global factors. Healthcare, with rising disposable incomes and demand for better private healthcare services, and NBFCs, where margins and credit costs are expected to improve, are also attractive sectors [1].

Despite the recent earnings recovery in some sectors, Mishra maintains a long-term view and avoids major portfolio changes based solely on quarterly results. The fund is also open to contra calls, such as increasing allocations to NBFCs where concerns over unsecured portfolios are peaking and earnings are expected to improve in the coming quarters.

The earnings recovery expected in the second half of FY26, supported by factors like the RBI’s rate cut, tax relief, and a favorable monsoon, should benefit consumption-driven sectors and export-oriented sectors. This could make midcaps an attractive investment option for the remainder of the fiscal year [2].

References:
[1] https://m.economictimes.com/markets/expert-view/midcap-stocks-still-pricey-tata-mutual-funds-take-on-where-to-invest-now/articleshow/123214496.cms
[2] https://economictimes.indiatimes.com/markets/stocks/live-blog/sbi-ltd-q1-results-state-bank-of-india-q1-fy26-tata-motors-quarter-1-revenue-earning-net-profit-loss-dividend-today-report-date-time-07-aug-2025/liveblog/123180210.cms?from=mdr