While the large-cap stocks have been rising, experts believe as sectors, mid-caps and small-caps will take a longer time to pick up as bigger companies could be in a better position to grab higher market share in their respective sectors after the lockdown ends.
The Indian market benchmarks, Sensex and Nifty, logged gains for sixth consecutive session on June 3.While the large-cap stocks have been rising, experts believe as sectors, mid-caps and small-caps will take a longer time to pick up as bigger companies could be in a better position to grab higher market share in
their respective sectors after the lockdown ends."The valuation gap between large-caps and mid-caps has narrowed which makes a case to be with large-caps at this juncture. On a trailing basis, both the Nifty50 and NSE Midcap 100 Index is trading at 19 times. On
a forward basis, the NSE Midcap 100 Index PE trades at just 7 percent discount to the Nifty50," said Rusmik Oza, Executive Vice President and Head of Fundamental Research at Kotak Securities.
"The theme of big getting bigger will further play out in the future post the lockdown. Bigger companies could be in a position to grab higher market share in their respective sectors. We can expect activity in mid and small-caps to pick up with a lag effect, maybe in the second phase of next bull phase," Oza added.
Amarjeet Maurya, AVP - Mid Caps, Angel Broking pointe doubt that in the recent past we have seen an up move in quality of mid-cap stocks.
"Going forward, we believe that stocks that have a high quality of business and are available at lower valuation will outperform the index in the next one year," Maurya said.
While as a sector, mid-caps may take time to outperform, there are stocks in the sector that have the potential to give healthy returns in times of uncertainty.
Here are 12 stocks that can give healthy returns in a one-year horizon. Take a look:
Analyst: Rusmik Oza, Executive Vice President & Head of Fundamental Research, Kotak Securities
Tata Power (TPWR) reported consolidated PAT of Rs 450 crore, up 94 percent YoY, for Q4FY20 aided by lower losses at Mundra that benefitted from the decline in coal prices, and higher generation from renewable assets which saw capacity addition of 317 MW over the past year.
This improvement in performance was largely led by an increase in the ratio of blending of lower GCV coal along with a decline in international coal prices. To address leverage concerns, TPWR has set aside a target of asset monetization of non-core assets aggregating Rs 5,000 crore for FY21E itself.
Indonesian Parliament has approved a revision to Coal and Mineral Law which is likely to give a 10-year extension to the existing license of KPC mines (mines owned by TPWR) with another extension of 10 years on fulfillment of certain criteria.
"The stock trades very cheap on both PE (8 times FY21E) and price/book value (0.62 times FY21E)," said the analyst.
The company has maintained its focus on asset monetization and debt reduction. It expects to close the transmission asset sale during Q1FY21 with a new buyer.
Work has commenced at various locations and ordering activity has started improving. Improving execution run-rate and healthy cash position lend comfort despite a difficult first half of FY21.
KPTL board has approved buy-back of shares at a maximum price of Rs 275 per share for an aggregate amount not exceeding Rs 200 crore, representing nearly 4.7 percent of paid-up capital.
"We cut our standalone FY21 and FY22 estimates for KPTL by 20 percent and 10 percent, respectively, on lower ordering and execution. Our SOTP based fair value works to Rs 470 where we have valued the core business at 10 times one year forward EPS," said the analyst.
PNC has announced inflows of Rs 5,180 crore of NHAI Hybrid Annuity Model (HAM) road projects in Q4FY20 which strengthens order book to about Rs 15,000 crore.
The analyst believes the order inflows in Q4FY20 as reasonable in the current environment when many bids have been postponed due to the outbreak of COVID-19.
PNC has a strong balance sheet at a standalone level which can meet equity commitment in old and new HAM projects. The company has continuously been investing in building its equipment base to execute its projects.
Though the company has resumed construction activities (to the extent possible) with effect from April 20, 2020, COVID-19 has increased risks related to delay in completion of projects, increase in working capital, higher cost, etc. which may impact near to medium-term earnings of the company.
"We believe that the recent correction in stock price factors in most of the concerns. Our SOTP based target price works to Rs 175. The EPC business (adjusted for Rs 37 per-share value of BOT/HAM) is available at a PE of 4.8 times and 4 times based on FY21E and FY22E adjusted EPS, respectively," said the analyst.
Analyst: Abhishek Karande, CMT, Senior Analyst, Reliance Securities
Biocon has posted a new life-time high and is now poised to oscillate higher from the current levels.
The stock had posted a minor pullback in the month of May 2020 which happens to be an intermediate correction.
"Higher timeframe chart indicates positive momentum building up for fresh up moves. On surpassing the intermediate level of Rs 400 decisively, the stock will head for Rs 500," said the analyst.
Coromandel International posted a new 52-week high last week at Rs 699 levels. At the current level, the stock could possibly post minor pullback until Rs 620-630 levels.
However, this pullback can be considered for accumulating the stock at lower levels as a higher timeframe chart is bullish.
"A weekly close above Rs 650-660 levels in the coming week would further prove supportive for the price to march towards the northern trajectory," said the analyst.
Aarti Drugs has posted a consolidation breakout on monthly charts. This consolidation was in place since April 2015.
This break has led the price to oscillate to a new life-time high. The oscillator on the monthly chart, mainly RSI, is now poised to move higher which could prove supportive of the prices.
"Any pullback until Rs 900 levels could be considered for adding fresh long for a major target of Rs 1,300 levels," said the analyst.
Analyst: Amarjeet Maurya, AVP - Mid Caps, Angel Broking
The company derives 54 percent of its revenues from domestic generic and API business.
Generics and API continue to provide revenue growth for Ipca. "We expect the company to outperform the Indian Pharmaceutical market by 8-10 percent per annum over the next few years," said the analyst.
Escorts is a prominent tractor player domestically with the market share in excess of 11 percent.
With farming activities relatively less impacted due to COVID-19, record food-grain procurement by government agencies as well as the expectation of normal monsoon 2020, the analyst expects the tractor industry to outperform the larger automobile space in FY21E with Escorts a key beneficiary.Escorts, in the recent past, has also entered into a strategic partnership with Kubota Corporation of Japan (one of the global leaders in farm machinery and implements), which provides further visibility of growth
for the company, said the analyst.
PI Industries is a leading player in providing custom synthesis and manufacturing solutions (CSM) to global agrochemical players.
The CSM business accounted for 66 percent of the company’s revenues in FY19 and is expected to be the key growth driver for the company in the future also.
Brokerage: Anand Rathi
Logistics, transport, manpower and port movement issues, coupled with a shortage of nitric acid (key raw material) and closure of chemical manufacturing due to the lockdown in March impacted Aarti’s Q4 results.
"We are attuned to Aarti’s long-term performance based on new chemistries, multi-year deals from FY21 and other expansions. The company plans to capitalise nearly Rs 2,400 crore of capex in the next 18-24 months, a long-term revenue assurance. We expect revenue/PAT to clock 15 perent/12 percent CAGRs over FY20-22," said the brokerage.
"We retain our buy rating, with a target of Rs 1,200 by discounting the expected future cash flows of the company. This gives the stock an implied valuation of 31.2 times FY22E EPS, 18.6 times FY22E EV/EBITDA," the brokerage added.
Issues in pharma RM sourcing, delays in implementing capex and in long-term contracts are the key risks for the stock.
AACL has a leadership position in the amines market for some of the products. The Indian amines industry broadly oligopolistic and AACL is one of the leading players with over 100 products.
The company planned to incur capex of about Rs 80 crore in FY20E and about Rs 100 crore in FY21E to further add capacities in its Dahej plant and augment capacities at other locations.
AACL is expected to generate revenues of around Rs 250 to Rs 300 crore out of these capital expenditure programs in the coming years.
"With a sustained improvement in performance owing to favourable raw material pricing, lower threat of dumping through imports and increased visibility of revenues going ahead we believe AACL should continue to report better performance," said the brokerage.
As per Anand Rathi, the company will continue with advertisement spending to boost brand recognition and sales growth while focusing on innovation and product launches as well as restructuring moves.
"We believe the company is well-positioned for continued growth owing to its strong portfolio of branded products, expanding distribution network and the expected revenue and cost synergies from the merger with the consumer business of Tata Chemicals," said the brokerage.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.