Check out: UBS India's seven midcap picks

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Check out: UBS India's seven midcap picks

Gautam Chhaochharia, head of mid-cap research, UBS India is bullish on midcap stocks like Jai Balaji Industries, Triveni Engineering and Industries, Petronet LNG Ltd, Coromandel International, Tube Investments of India, IBN18 Broadcast and Pidilite Industries.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Jai Balaji Ind BSE | NSE 30/05/12 Are Mutual Funds betting on Jai Balaji Ind? Other Stocks in this news Triveni Engineering and Industries | Petronet LNG Ltd | Coromandel International | Tube Investments of India | TV18 Broadcast | Pidilite Industries |

In an interview with CNBC-TV18, Gautam Chhaochharia, head of mid-cap research, UBS India said the valuation discount between midcap and largecap space has widened a lot over the last few quarters and that is one key reason for being positive on midcaps.

Chhaochharia is bullish on midcap stocks like Jai Balaji Industries , Triveni Engineering and Industries , Petronet LNG Ltd , Coromandel International , Tube Investments of India , IBN18 Broadcast and Pidilite Industries .

(Note: Web18, which owns Moneycontrol.com and Indiaearnings.com, belongs to the Network 18 Group)

Also read: Timex and Parsvnath Dev offer good value, says Aashish Tater

Below is the transcript of his interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying videos.

Q: How are you feeling about the midcap universe right now?

A: There are a couple of things. Midcaps are always more bottom-up stock picking, so there is always a good time. Over the last few months, especially since November'10, midcaps as a space have underperformed the largecap space and this despite having decent Q3 as well as Q4 numbers. So, clearly in terms of positioning versus largecaps, the valuation discount has widened a lot over the last few quarters. So, that is one key reason for being positive on midcaps.

Secondly, in terms of our coverage, our top picks we look at bottom-up bases. Most of the stocks, which we are covering, have interesting stories as well as positive outlook. There are 28 companies in our inaugural midcap conference in Mumbai. We are seeing very good response from investors

Q: You have classified some of these midcap picks into separate categories like deep values, special situation etc. Deep value stock, according to you, Jai Balaji Industries, why do you think it is trading at a significant discount?

A: Jai Balaji Industries' existing steel operations is what the stock price is currently reflecting at best. The current steel company is being valued at discount to EV-EBITDA multiples for peer companies. The bigger part of Jai Balaji Industries company is the coal blocks. It has about 700 million tonne of coal resources. Clearly, the market is not giving any value to the company for that resource.

As we see coal auction going through over next couple of years, which the government plans to, the value of this will get realised in terms of market giving it value. Obviously, from a company point of view or cash flow point of view, the company has aggressive plans in setting up steel plants in Purulia Project to monetise these coal assets.

Q: Moving to special situation, there you have picked Triveni Engineering.

A: Triveni Engineering is very interesting. Triveni, the current listed company, just got restructured, but the delisted entity had sugar business, industrial turbines and gears also. They have aggressive plans in the industry turbine business, especially the JV with GE.

If you look at the stock price, it appeared to be valuing only the sugar business and a very small part of the engineering business. The reason for that is current lack of interest in sugar companies in general. So, as we see the company being restructured where we have the turbines business being listed separately, the value unlocking will come through in a big way.