Market has given stellar returns in the decade gone by as all the key indices, including sectors, more than doubled despite crises like crude spike, currency meltdown, taper tantrum, liquidity crisis, COVID-19, IL&FS & DHFL scam, etc.
The benchmark Nifty50 surged 130 percent in the last decade, while the Nifty Midcap index was up 135 percent. Among sectors, Nifty FMCG topped the sectoral list with 263 percent gains, followed by IT (up 223 percent), Bank (up 165 percent) and Pharma (up 154 percent).
Single party government at the Centre after almost three decades of coalition governments, was one of the key factors seen last decade. As a result, several big ticket and game-changing reforms announcements were seen in last six years of the past decade.
Corporate earnings – the fuel for the market's upwards journey – were muted in the decade gone by, but the hope for an earnings revival, as ever, remains intact as India emerges out of the COVID-19 crisis, said Motilal Oswal.
"The last decade also saw near historical low interest rates, both in India and globally, which would have a defining impact on consumption, growth outlook, valuation of asset classes, and multiple other aspects," the brokerage added.
Going forward, in the next decade, experts feel Midcaps are expected to continue its outperformance given the slew of measures including Atmanirbhar Bharat, Vocal for Local, Make for World, etc. announced by the government to make India a manufacturing hub and become $5 trillion economy by 2024, especially after COVID-19 crisis which opened up lot of opportunities.
"The upcoming decade could be the one for Midcaps as they are well-positioned to continue outperforming the Nifty50. This is primarily because the capex cycle has now started to bear fruit in Midcap companies and are well-positioned to deliver faster growth, while gaining higher market share, bringing in cost efficiencies and improving profitability," Nirali Shah, Senior Research Analyst at Samco Securities told Moneycontrol.
"With India continuing to offer strong investment and growth opportunities with a goal of becoming an economic powerhouse, such companies will witness strong growth over the current decade as new opportunities continue to present themselves and macro drivers remain favourable," she added.
While midcap stocks tend to see more volatility versus Nifty50, over a longer term they tend to deliver stronger returns and this theme is expected to play out going ahead, Nirali Shah said.
Gaurav Garg, Head of Research at CapitalVia Global Research also believes the story might repeat for midcaps as growth is intact and earnings might surprise in next few years as India is seeing a steady recovery in demand after COVID-19.
"Higher mutual fund inflows in last few quarters show that bull run might continue in midcap space. In current environment, MidCap companies are likely to do well and might outperform large cap space," he said.
Here is a list of 10 midcap stocks which experts feel could not only become largecaps but also give multibagger returns in a decade:
Expert - Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities
We expect Laurus Labs earnings to increase by 257 percent in FY21. The stock has already surged 3.3x in the last one year because of the sharp jump in earnings. The company's transformation in the last 18 months has been phenomenal. The large scale capacity of 500 crore tablets in the HIV segment has now got fully utilised. Incremental capacities coming from strong operating cash flows and pick up of launch momentum in the US and Europe will drive the next leg of growth for the company. Recently it acquired 72 percent in a company called Richore Lifesciences for around Rs 250 crore. This acquisition provides it with fermentation capabilities and offers diversification into newer areas including recombinant products.
We like the company's strategy of identifying new revenue streams. The recent acquisition shows the intention of the company to grow inorganically in future also. Laurus' strong capacity additions across all key segments, including formulations, already provide strong near-term growth prospects and successful ramp-up of new capabilities could enhance long-term growth visibility. On financials, we except revenue to double from Rs 2,832 crore in FY20 to Rs 6,115 crore in FY23. EBITDA margins should move up from 20 percent in FY20 to 31.7 percent in FY21 and sustain above 30 percent in the next two years. Return on equity (RoE) which is expected to rise to around 34 percent this year should stabilise between 24 & 30 percent in future. Net Debt-equity ratio is comfortable at around 0.5x and expect the company to be net debt free by FY23. Since the stock has had a dream run in the last one year, one should look for adding the stock in corrections to make compounding returns in future.
In the last 10 years, the company has reported 13 percent CAGR in revenue and 23 percent CAGR in net profit. The stock price has compounded at 47 percent CAGR in the last 10 years. It has demonstrated consistent RoE in the range of 20-22 percent for the last 10 years. It is one the larger names in the specialty chemicals space which has demonstrated very good export potential. Similar to IT services, specialty chemical is one more sector where India can score over other countries because of pollution, effluent treatment and scientific talent.
Aarti Industries is at the forefront in terms of bagging large ticket size, long term export contracts for manufacturing and exporting of specialty chemicals. Aarti Industries is one company that is showing visibility of attaining higher scale of operations in future. At the scale it is operating today and the kind of operating cash flows it is generating it will have good M&A opportunities also to explore in future. At today's market cap of around Rs 22,600 crore, FII investment in the company is just around 7.5 percent. As the market cap goes above $5 billion in future, we can expect FII investments to increase materially which could propel it comfortably in the large cap category.
Expert: Nirali Shah, Senior Research Analyst at Samco Securities
Dixon Technologies is well placed to gain momentum going ahead as the technological shift in India and Atmanirbhar Scheme have seen manufacturers change their operations to a more localised approach. With Dixon's superior capabilities in manufacturing consumer-grade white goods and electronics and strong support from the government in the form of Production Linked Incentive (PLI) scheme, the company has strong tailwinds to boost its topline. Investors are expected to gain significant value in the coming decade as the PLI scheme aids to jumpstart Dixon tech’s sales.
Deepak Nitrite enjoys a strong competitive positioning in most of its product categories and has a loyal client base. It has maintained a healthy growth rate and is likely to improve its market share going ahead too given its already a leader, has an established track record, and has large R&D capabilities. Given the huge long-term demand emerging for the chemical industry in India, Deepak Nitrite stands to expand its capacities and grow multi-fold over the coming decade driven by strong in-house capabilities and favourable macros. This makes it a powerhouse stock for the coming decade.
Expert: Prashanth Tapse, AVP Research at Mehta Equities
We believe Sumitomo Chemical has potential to emerge as a largecap as well as provide multibagger return by the end of the current decade. It is one of the leading major players in the space of agro chemical companies, offering a diverse range of products globally. Its diversified product portfolio including insecticides, weedicides, fungicides, fumigants and rodenticides as well as plant growth nutrition products, bio-rationals and plant growth regulators, well-balanced technical and formulations manufacturing capabilities helping Sumitomo to establish itself as strong long term player. Sumitomo products also cover multiple crop segments in both Kharif and Rabi seasons and non-agrochemical including animal nutrition and environment health products which act as a key catalyst of growth. Further, close to 20 percent of the revenue is generated from export markets, partially offsetting the risk related to demand cyclicality in the domestic market.
IRCTC can also be the next multibagger candidate backed by its healthy fundamentals and monopoly it enjoys in its space being the sole service provider to Indian Railways, and exclusivity, in onboard catering and sale of packaged drinking water, which ensure that it can generate a fairly predictable decent cash flow for the long term.
Based on secondary market research as on December 2020, Indian railways are running around approximately 60 percent capacities and once they are back to pre-COVID booking with 8.50 lakh ticket per day and 100 percent capacity utilisation one can assume the growth going forward. Hence we believe the stock has a long way to go, as it has a strong long-term cash-generating business, which can create huge wealth for investors.
Expert: Gaurav Garg, Head of Research at CapitalVia Global Research
Jubilant FoodWorks, which operates Domino's Pizza and Dunkin' Donuts restaurants in India is one of the best companies to invest in mid-cap space. Topline is growing more than 15 percent since last 4 years and its online presence along with its innovative & out of box strategies might help brand to grow exponentially. Also, changing lifestyle and eating habits would result in fast growth for the company as it is placed at a sweet spot of capturing this.
Strong demand in packaging films and specialty chemicals business have benefited SRF most in specialty chemical space. I believe SRF is strong contender to become largecap in next decade as it has beaten street expectation in terms of earnings consistently. Company is eyeing infusion in CAPEX for its expansion in business arms in next 5 year which would fuel the growth for the company in coming years.
Expert - Amarjeet Maurya - AVP - Mid Caps at Angel Broking
Page Industries is engaged in the manufacturing distribution and marketing of innerwear athleisure sleepwear and swimwear for men, women and kids. The company is the exclusive licensee of the Jockey brand. Jockey is the market leader in premium inner wear & leisure wear category in India. Going forward, we expect healthy revenue growth and profitability on the back of a strong brand, wide distribution network and entry in new segments like Athleisure & Kids.
Whirlpool of India is engaged in manufacturing and selling of refrigerators, washing machines, air conditioners, microwave ovens, built in and small appliances and caters to both domestic and international markets. WIL's product portfolios presence in the lower penetration category, which would lead to higher growth. Further, increasing focus on emerging categories like water purifier, AC and Kitchen Hoods & Hobs and feeling product portfolio gap by launching products. Going forward, we expect healthy profitability on the back of a strong brand, wide distribution network, capacity expansion & strengthening product portfolio.
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