The CNX Midcap Index is trading at a 30 percent premium to the Nifty on a one-year forward PE basis over the 10-year average discount of 10 percent, CLSA said in a note released last week.
The global investment bank has turned cautious on the midcaps space and prefers quality and growth visibility. The domestic mutual fund's industry has a bias towards mid/smallcaps in general.
A recent Sebi circular proposes imposing several conditions on domestic equity mutual fund houses and schemes and may force them to buy more midcaps (market cap of US$1.4bn-4.4bn) over the next few months.
Here are top seven stocks from the midcap space:
Aditya Birla F&R offers a strong combination of India’s top-four apparel brands (Madura division) and one of the largest value-fashion retail networks (Pantaloons). The steps taken to turn Madura around should lead to sustainable same-store sales growth (SSG).
Pantaloons continue its store expansion, with the majority of the newer stores coming under franchise agreements. CLSA sees a large opportunity in women’s fast-fashion with limited competition.
FY21 is likely to breakeven by end of FY18. The innerwear business is ramping up rapidly and the distribution network has now expanded to more than 3,400 outlets.
Crompton Consumer has set itself a target to be the fastest-growing company in the sector with an aim to create ‘disproportionate’ stakeholders returns.
Crompton has margin tailwinds with an opportunity to grow not only in its existing categories but also considerably expand its addressable opportunity.
A shorter credit cycle could help Crompton negotiate better vendor terms; offset near-term margin headwinds from higher ad and distribution expenses. Expansion into a new category by leveraging its strong distribution network and brand recall could lead to further stock rerating.
Crompton’s strong returns profile, robust growth expectations, and improvement in FCF justify premium valuations. Crompton remains our most preferred pick in the consumer durables and affordable housing space.
Century Plyboards: BUY
Century Plyboards is transitioning from a market leader in plywood to a complete interior-infrastructure-solutions provider by leveraging its brand strength and distribution network.
Its diversified raw material sourcing capability is its key competitive advantage. It has scaled up its laminates business operations and is further expanding its capacity about 50% to 7.2m sheets by FY18CL.
It has made a strong entry into the MDF market with an installation capacity of 198,000 cubic metres, around 35-40% of the total MDF capacity. The recent cut in GST rates also impacted its margins.
Jubilant FoodWorks: BUY
Jubilant FoodWorks, a play on the recovery in consumer sentiment and its growth focus and profitability should drive strong earnings growth.
Apollo Hospitals Ltd: BUY
Apollo Hospitals is seeing a turnaround in its existing and new hospitals.
Both companies are major beneficiaries of the shift to organised developers after the implementation of RERA.Disclaimer: The views and investment tips expressed by CLSA on moneycontrol.com are its own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.