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There is momentum in small & midcap but investors should stay cautious: Mohit Nigam of Hem Securities

Investors should pick stocks that are fundamentally getting stronger despite the Covid-19 impact. This will help in creating a perfect balance in the investor portfolio with limited downside risk, says Nigam.

June 14, 2021 / 11:36 AM IST
 
 
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Mohit Nigam, Head, PMS & advisory, Hem Securities, says there is momentum in the broader market space as well as with largecap stocks that were not able to perform for the last two-three years.

A chartered accountant by training, Nigam has about six years of experience in the capital market. Before joining Hem Securities, he was with Axis Bank, as a treasury, and was part of Goldman Sachs Investment Banking Division.

In an interview to Moneycontrol’s Kshitij Anand, Nigam says that after crossing 15,800, 16,000 will be the next high for the Nifty. Edited excerpts:

Where do you see the Sensex and the Nifty this week? Which are the important levels to track?

Close

We are bullish on the market following a decline in the active COVID case trajectory as well as the phased unlocking announced by a few states resulted in improved market sentiment.

After crossing the 15,800 level, we expect the Nifty50 to touch the next fresh high of 16,000.

Small & midcaps have also been participating in the rally. What is leading to the price action and what is the outlook?

We see momentum in the broader market space as well as with the largecap stocks, which were not able to perform for the past two-three years.

Currently, the companies in this segment have shifted to a more growth-oriented and sustainable business approach, which has helped in bringing traction in this sector.

Smallcap funds are seen as an indicator of a recovering economy, as these stocks tend to gain more traction in a high liquidity situation in the market.

In our opinion, investors need to be cautious in this segment as these stocks have great potential of appreciation in their prices, which comes with significant risk.

More than 400 stocks hit a fresh 52-week high on June 11. Should investors pick stocks that have the momentum, especially the ones which are hitting 52-week highs?

This time active retail participation has also contributed significantly to the fresh record high for both the Sensex and the Nifty 50.

To my mind, investors should pick out stocks that are fundamentally getting stronger despite the impact of Covid-19. This will help in creating a perfect balance in the investor portfolio with limited downside risk.

BSE utilities and power indices were the top sectoral gainers in the week gone by. What led to the price action?

Shares of power generation and distribution companies continued their upward movement, with all the major power companies hitting their respective all-time highs on the BSE.

India's power consumption grew 12.6 percent billion units (BU) to 25.36 BU in the first week of June. Power consumption for the same period a year ago was 22.53 BU.

Peak power demand was recorded at 168.72 GW on June 7, up 15 percent from last year's 146.5 GW. The rally in the power sector is on back of the news of the power sector reforms (of choice of distributors in a region) the government planned in the budget of FY22 will be started soon as COVID has subsided all over the country.

The power distribution, as per the government reforms, will be treated as a service, which makes power discoms as the service provider. This change allows players to enter into the power distribution system.

Also, one of the major reasons for discoms to report losses is the long-term power purchase agreement with the generation companies at higher prices when alternate power is available at lower prices.

Allowing distribution companies to opt for spot power purchases from the exchanges will be beneficial for both the generation companies and distribution companies as to have fair price discovery for the required power.

With these reforms and changes in the industry, power stocks rallied whether the public sector units or private, power generator or distributor.

Which are the stocks that are looking attractive at current levels?

Here is a list of stocks that are looking attractive at current levels:

IEX

The company is the first and largest energy exchange in India with a nationwide presence and automated trading platform for physical delivery of electricity.

The company operates in a high growth market and with top-line growth at the CAGR of 11 percent over the last five years.

With reforms in the power industry and increasing participation on the trading platform of the company, IEX is expected to deliver strong top-line growth.

Shakti Pumps 

Shakti Pumps is one of the leading brands in the solar pump space and also a major beneficiary of PM-Kusum Scheme, which aims to install 37.5 lakh solar pumps in India in the coming years.

Last financial year, it grew its business by nearly three times with the help of Kusum Scheme and an increase in exports.

The management has guided to double its revenue to Rs 2,000 crore in FY22 with a healthy margin profile.

Borosil Renewables 

It is the sole manufacturer of solar glass in India and with the "Make in India" focus led by anti-dumping duties and PLI scheme for domestic solar module manufacturing, it is set to grow its operations multi-fold in coming years.

The company has already announced capacity expansion plans for up to four times its current levels.

Escorts 

Escort is India’s foremost tractor manufacturer, offering tractors from 12 HP to 120 HP and has around 11.3 percent market share of India’s tractor industry. Escorts crossed 1 lakh tractor sales for the first time in 2021.

Exports of e-Kubota branded tractors through Kubota’s global network began from 4QFY21 in four markets.

Macroeconomic factors such as under penetration of farm mechanisation, robust cash flow from rabi season, the expectation of normal monsoon, healthy reservoir levels, and continued government focus on boosting rural incomes are positive for the stock.

Disclaimer: The views and investment tips expressed by 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.

Kshitij Anand is the Editor Markets at Moneycontrol.
first published: Jun 14, 2021 11:36 am

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