Experts line up top 6 bets as midcap meltdown roils the market

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As midcap stocks see heightened volatility, experts suggest that there might be fresh buying opportunities in the segment.

Despite trading in the green on March 14, concerns regarding elevated valuations and apprehensions regarding frothiness in the midcap and smallcap sectors have caused a meltdown in the space. The Nifty Smallcap 100 index traded down 13.5 percent and the Nifty Midcap 100 index around 6.8 percent from their respective peaks.

In a conversation with Moneycontrol, Gaurang Shah, senior VP at Geojit Financial Services, said: “When the midcaps and smallcaps run up, it’s difficult to catch them but when they fall, it’s difficult to sell them. If investors can’t handle a 10-15 percent correction, they shouldn’t enter the space.”

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However, for long-term investors, these dips are golden opportunities to accumulate businesses that are fundamentally strong. “The turbulence in the market will give opportunity to cherry-pick stocks. From now on, irrational exuberance will take a backseat and rational valuations and quality will be the driving force,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

Companies with lower leverage, a healthier balance sheet, and reduced financial risks are prioritised, along with strong fundamentals and a commitment to good corporate governance are the preferred bets. “Despite the challenges in predicting short-term trends, maintain confidence in the long-term potential of selective mid-cap companies,” said Manish Chowdhary, head of research at StoxBox.

Here are some midcap stocks that experts are bullish on 

Mahindra Lifespaces | Upside: 25% | Down from 52-week high: 16.9%

Manish Chowdhary is bullish on Mahindra Lifespaces, as the realty player’s recent launch surpassed expectations, with pre-sales exceeding Rs 800 crore, marking a pivotal moment for the company. “The company's strategic focus on lucrative micro markets and premium segments positions it for significant growth,” he said.

Mahindra Lifespaces aims to elevate its Gross Development Value (GDV) from Rs 15,000 crore to Rs 45,000 crore within the next five years. The envisioned trajectory includes a target of growing revenue by 5x over the next 5-7 years, indicating a clear path towards expansion and enhanced profitability.

On March 13, Mahindra Lifespaces settled at Rs 525.9 per share. Chowdhary sees a further upside of 25 percent from current levels to around Rs 657 per share.

Shakti Pumps (India) | Upside: 26% | Down from 52-week high: 27.6%

Another pick from Manish Chowdhary is Shakti Pumps. The firm is expected to install around 69,000 pumps over the next two years. The healthy revenue guidance, coupled with stable quarterly performance, topline and order book of the company, look promising for the coming period, ensuring robust growth for the company.

Under the PM KUSUM Scheme, over 35 lakh solar pumps will be installed until FY28. The average price of installing a solar pump is around Rs 3 lakh, so the total market opportunity stands at Rs 1.05 lakh crore.

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“Shakti Pumps India is poised to benefit from such a scheme over the years. Considering the long-term scenario, the high energy targets set by the government, coupled with the ease of installation of the company’s products, are expected to drive the market going ahead,” Chowdhary added. There could be a potential upside of 26 percent, from Rs 1,160.75 per share to Rs 1463 apiece.

Archean Chemicals | Upside: 40%  | Down from 52-week high: 28.9%

Archean Chemicals is a marine chemical player, one of the few to have seen healthy growth despite the chemical sector seeing challenges. The stock is valued at 15X forward earnings – a good value zone for a company that is going into specialty bromine derivatives from next FY onwards. The company is poised for both earnings growth and a potential PE rerating, which can gives upto 40 percent upside to around Rs 835.24 per share,  said Priyam Shah, Partner at Falcon Capital Advisors.

LIC Housing Finance | Upside: 21.9% | Down from 52-week high: 12.1%

LIC Housing Finance’s strong retail presence, brand image and network of parent, LIC, create a key moat against peers in the housing finance category. “LIC Housing Finance has also made a conscious effort to improve profitability by expanding its NIM. The management of LICHFL has executed a significant clean-up of the balance sheet and Asset quality,” said Omkar Kamtekar, research analyst at Bonanza Portfolio.

During FY23, its net NPA declined by 102 bps to 2.70 percent from 3.72 percent in FY22. As of 9MFY24, 99 percent of outstanding loans of LICHFL are pure floating rate loans. This has enabled LICHFL to swiftly pass on interest rate hikes, allowing for NIM expansion.

Kamtekar foresees an upside of 21.9 percent on the counter to Rs 720, up from Rs 590.45 as of close on March 13.

Narayana Hrudayalaya | Upside: 26.3% | Down from 52-week high: 17.8%

Narayana Hrudayalaya is well recognised for providing high-quality healthcare at affordable prices. Around 60-65 percent of beds of Narayana Hrudayalaya are in general wards, which is one of the highest compared to other private hospitals - which enables it to operate at lower costs.

“Given management’s focus on growth, we expect the hospital to utilize the proceeds from the Cayman Island facilities in being more aggressive in scouting for expansion opportunities in the Caribbean Islands and eventually the US,” Kamtekar said.

The management guided capex of Rs 1,000 crore will be spent on high performing assets such as Bangalore, Kolkata, and Cayman. The increasing penetration of health insurance across the country will be another key driver for the industry of which the firm will be a prominent beneficiary, he added.

The stock could see an upside of 26.3 percent to Rs 1,500 from current levels, according to Bonanza Portfolio.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.