"Long term investors should not get carried away by such instant short term outperformance and can have exposure upto 20-25 percent in few promising quality mid & small cap stocks," Prashanth Tapse said.
While benchmark indices have rallied 35 percent since March 24, broader market has also played catch-up. BSE Midcap index has rallied more than 36 percent from its March 23's low point.
Although year-to-date most of indices are still in the red.
Even at stock-specific level, more than 80-85 percent of stocks have already turned positive if we consider the March lows.
Though market has been in up trend, the fundamentals have been negative with the number of COVID-19 cases on the rise. So experts say valuations have now become expensive. Hence, most experts advise investors to turn cautious and be selective in stock picking.
"Looking at the current economic re-opening scenario, we believe right asset allocation helped investors to stay calm during coronavirus meltdown and in uncertain times like the current one, where the volatility increases, and the swings would be big," Prashanth Tapse, AVP Research at Mehta Equities told Moneycontrol.
"Mid & small caps shined a lot in last 2 weeks mainly driven by liquidity, but we remain cautious on mid & smallcap space as fundamentals are weak and valuations seem expensive as on date. However, long-term investors should not get carried away by such instant short-term outperformance and can have exposure of up to 20-25 percent in few promising quality mid & small cap stocks and balance 75-80 percent in leading quality frontline large caps," said Tapse.
Moneycontrol has collated a list of midcap companies that could return 10-56 percent in next one year period:
PI Industries: Buy | Target: Rs 1,889 | Return: 22 percent
"PI Industries is a market leader in fast growing custom manufacturing space catering to leading agrochemical companies globally," Angel Broking said.
Aarti Industries: Buy | Target: Rs 1,284 | Return: 35 percent
"Aarti Industries is well diversified across product, customer, geography and end user industry. Significant opportunity for Aarti will arise from environmental related issues in China and companies looking to diversify supply chains," Angel Broking said.
IDFC First Bank: Buy | Target: Rs 32 | Return: 19 percent
Angel Broking believes efforts to build liability franchise, fresh capital infusion and provision taken on wholesale book will help to tide over this difficult time. "The IDFC First Bank is trading ( 0.7 x FY22ABV) at a significant discount to historical average valuations," the brokerage said.
Mindtree: Buy | Target: Rs 1,123 | Return: 18 percent
"Considering the strength and prowess of Mindtree in digital technologies, this augurs well, at the very fundamental level, for its continued success amidst all uncertainties and disruptions," said SMC Global Securities.
"The company aims to continue to balance its technology strategy with human-centric approach, both at the market place as well as the workplace, for that it has been a huge enabler for consistent growth. Thus, it is expected that the stock will see a price target of Rs 1,123 on a current P/Ex of 24.75x and FY21 EPS of Rs 45.38," it added.
PNC Infratech: Buy | Target: Rs 201 | Return: 44 percent
PNC Infratech reported decent set of numbers during Q4 FY20 with standalone revenue growing 7.6 percent YoY despite COVID-19 related shutdown impacting 10 days of execution during March 2020. Order inflow target for FY21 stood at around Rs 7,000 crore, said Yes Securities.
"With COVID impact on topline and margins, we cut our estimates for FY21 and FY22. However, we believe, the company is well placed to speed up execution in H2 FY21. Continued focus on asset monetization and comfortable balance sheet position provide comfort. We maintain our buy rating on the stock for revised target of Rs 201," the brokerage added.
Asahi India Glass: Buy | Target: Rs 221 | Return: 21 percent
"The company has a sustainable revenue stream, with long-term growth visibility, driven by expected demand from the automotive and construction segments. (India's low per capita glass consumption offers a large growth potential). It is also efficiently reducing its working capital cycle (current 35 days)," said Dolat Capital.
"As most of capex has already been incurred, AIS is likely to generate strong free cash flow in FY20-23E. This should help repay debt. We forecast a 56 percent CAGR in earning in FY21-23E, driven by a 22 percent increase in EBITDA, and benefits from the fall in interest rates and tax. We value the stock Rs 220 (based on 25x of Sept 22E EPS), and recommend buy," it added.
Prince Pipes: Buy | Target: Rs 180 | Return: 56 percent
"Prince Pipe and Fittings reported reasonably good Q4FY20 numbers, broadly in line with peers. Gross/EBITDA margins rose 250bps/170bps YoY and were 440bps/660bps above JM Financial estimates on the back of a) a favourable product mix (fewer agri products), b) better pricing power, c) inventory valuation (closing stock valuation includes raw material and other overhead costs) and d) lower A&P spends and other expenses. In January-February 2020, pipe volume/revenue grew 10/16 percent YoY, while in March 2020, it declined 52/51 percent owing to the COVID-19 led lockdown. EBITDA margins expanded by 170bps to 13.4 percent due to better production efficiency and cost controls. We tweak estimates and maintain buy with a March 2020 target of Rs 180," said JM Financial.
Mphasis: Buy | Target: Rs 980 | Return: 10 percent
"Given its strong Q4 & FY20 and assuring commentary by DXC and confident outlook across segment, we believe its current valuations at around 12x offers attractive risk-reward and thus we maintain our buy rating on the stock with target of Rs 980 valued at 14x on FY22E EPS in line with its 3-year median PER," said Dolat Capital.
SRF: Buy | Target: Rs 4,318 | Return: 20 percent
SRF has guided for a 20-25 percent growth in specialty chemicals for FY21, with a beckoning order book and optimised product funnel. Specialty Chemicals grew by around 60 percent YoY in FY20 to around Rs 1,650 crore and continues to be a growth driver of the company, said Dolat Capital.
"SRF's working capital management has yielded in a strong operating cash flow, we expect EBITDA/OCF to be at 1.03/0.78 in FY21/FY22E. De-leveraging may not be significant in the near term, however total debt/EBITDA is expected to be at a comfortable level of 1.8x. SRF's strong capex plans (around Rs 1,300 crore in FY21) and focus on growing specialty chemicals business are expected to be RoCE accretive at full capacity utilisations," said the brokerage which likes SRF's moat in fluorination and ability to scale up its growth engines.
"We value SRF on a SOTP basis, and revise our rating to buy with a target price of Rs 4,318 per share," it added.
CG Consumer Electrical: Buy | Target: Rs 260 | Return: 10 percent
"Consumer durables is one of the sectors which have been severely affected on account of the lockdown and is expected to post only a gradual recovery as lockdown opens. Within the consumer durables pack, we believe that are low ticket, replacement FMEG items like fans and lights will recover the fastest. Hence we believe Crompton Consumer is among the names best primed for faster recovery within the FMEG space. Its focus on costs as well as it strong balance sheet were also at fore in FY20," said Dolat Capital.
The brokerage has a buy rating with a target of Rs 260, valuing the stock at 34xFY22E. "Crompton continues to trade a 15-20 percent discount to peers like Havells and V-Guard, despite having superior return on equities."Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.