Rally in broader markets not done yet, say experts; these 16 mid, smallcap stocks can give double-digit returns in 1 year

© Nishant Kumar
Rally in broader markets not done yet, say experts; these 16 mid, smallcap stocks can give double-digit returns in 1 year

Indian equities are trading at record highs, thanks to improving macroeconomic indicators and healthy quarterly earnings. In the calendar year so far, equity barometer Sensex has gained 14 percent. However, it is the mid and smallcaps that have hogged the limelight.

The BSE midcap index has jumped 29 percent while the smallcap index has surged 48 percent this year so far.

On August 4, the Sensex clocked a gain of over a percent while the mid and smallcaps fell over a percent each, raising concerns that the rich valuation has started taking a toll and the space is due for a correction.

Read More: Mid, smallcaps show signs of weariness. Are they ripe for a healthy correction?

Mid and smallcaps may cool off a little but this opportunity should be used to add quality stocks to your portfolio as the long-term market outlook is bullish, experts said.

“In 2021, one of the biggest reasons for mid and smallcaps to outperform largecaps is due to the rising inflows from retail investors, which are more active on non-heavyweight stocks. Mid and smallcaps are expected to do better in the coming quarters amid unlocking of economy,” said Vinod Nair, Head of Research, Geojit Financial Services.

“Their outperformance may continue in FY22, especially from the sugar, metal and commodity stocks. Investors should add quality midcap growth stocks to their portfolio during corrections,” said Ashis Biswas, Head of Product, CapitalVia Global Research.

Here are 16 stocks from the mid and smallcap space that analysts believe can give healthy returns in a one-year time frame:

Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities

NCC | LTP: Rs 87.15 | Target price: Rs 114 | Upside: 31%

The current valuation of the stock more than factors in weak execution. Improved visibility on net executable order book after removal of Andhra Pradesh orders, and positive surprise on order wins are the positives.

Phoenix Mills | LTP: Rs 860 | Target price: Rs 973 | Upside: 13%

The company’s large-scale mall business and healthy internal accruals, leading to positive cash flows, low debt, aggressive capex, QIP fundraising, investments by GIC/CPPIB, geographic diversification, FDI inflows, and expected recovery in retail consumption are all positives for the stock.

CESC | LTP: Rs 788 | Target price: Rs 1,011 | Upside: 28%

CESC’s demerger plan will lead to substantial value unlocking. The move would bring with it benefits like isolation of cash flows of the power vertical from other businesses (one of the investors’ key concerns) and the opportunity to invest in a pureplay power distribution business, with steady cash flows and growth.

Post the demerger, several assets (stake in Noida Power, renewables and others) would get their fair value (not the case in the conglomerate structure).

Subros | LTP: Rs 341 | Target price: Rs 410 | Upside: 20%

Increased local content in manufacturing has led to a significant cost reduction and margin expansion.

Technical collaboration with Denso has helped the company in R&D and developing new products.

The recent banning of imports of ACs by the government would further boost domestic manufacturing and benefit Subros.

Ashis Biswas, Product Head, CapitalVia Global Research

CAMS | LTP: Rs 3,463 | Target price: Rs 4,025 | Upside: 16%

The company has consistently grown its operating profit margin from FY19 and we can see its net profit margin growing, too.

The company has no debt as of now and cash flow from operations have been increasing (FY19 to FY21), which indicates the strength of its operations.

BASF | LTP: Rs 2,889.90 | Target price: Rs 3,560 | Upside: 23%

The company has consistently grown its revenue by around 38 percent (average).

Cash flow from operations has been healthy throughout, from FY19 to FY21, with only FY19 being an exception when it was negative.

Bajaj Consumer Care | LTP: Rs 279.65 | Target price: Rs 350 | Upside: 25%

The company has been consistently growing its revenue since FY17. The price/book value for the period ending FY21 is 5.06, which seems fairly valued.

It has been consistent in its cash flow from operations, which shows the operating efficiency of the company.

Route Mobile | LTP: Rs 1,998 | Target price: Rs 2,620 | Upside: 31%

The company has grown its revenue 32 percent (average) since FY17 and the cash flow from operating activities has been promising.

The low debt to equity ratio suggests low leverage risk and the environment is now well disposed and suited for IT firms.

Ajit Mishra, VP, Research, Religare Broking

CSB Bank | LTP: Rs 340 | Target price: Rs 432 | Upside: 27%

CSB Bank is well placed for steady growth as it has a strong gold loan book, prudent management team and steady financials with improved asset quality.

Further, a well-planned strategy like betting on less risky businesses such as agriculture, food & service, etc and avoiding risky unsecured loans augur well for future growth.

Kansai Nerolac | LTP: Rs 630 | Target price: Rs 705 | Upside: 12%

The company has maintained its leadership position in the industrial paint segment as it has a strong backup for developing paints and resin formulation from its parent Kansai Paint Co Ltd.

Going ahead, its strategy is to grow in both segments as well as gain market share from unorganised players on the back of positive sector trends, innovative products, focus on non-auto segments, increase distribution network and expand to newer geographies and semi-urban and rural areas.

INOX Leisure | LTP: Rs 314 | Target price: Rs 376 | Upside: 20%

The pickup in vaccination and easing of lockdown restrictions has led the state government to allow the reopening of theatres.

The recovery would be gradual for the multiplex industry but players like INOX stand to benefit in the long run due to its wide presence.

Moreover, the pandemic would also help large players like INOX to strengthen their market share.

EXIDE Industries | LTP: Rs 173.30 | Target price: Rs 229 | Upside: 32%

EXIDE Industries may further strengthen its position in India’s battery market, driven by its healthy relationship with OEMs, strong focus on technology upgradation, and faster shift towards organised players.

Further, the company has two lead smelting units for captive consumption, from which it meets nearly 40 percent of its lead and lead alloy requirements from recycled lead. This would reduce volatility in margins caused by movement in lead prices.

Vinod Nair, Head of Research at Geojit Financial Services

Glenmark Pharmaceuticals | LTP: Rs 595.60 | Target price: Rs 717 | Upside: 20%

The company’s outlook remains promising with the topline to grow amidst strong domestic performance and new launches. Margins will expand on the back of cost rationalisation, subdued R&D spend and robust pipeline.

Avanti Feeds | LTP: Rs 643 | Target price: Rs 760 | Upside: 18%

Demand outlook is improving, given the re-opening of hotels and malls in export markets, along with better export and farm gate prices and favourable shrimp culture conditions.

A new export incentive scheme is expected and any positive development in terms of rates will aid margin improvement.

Amara Raja Batteries | LTP: Rs 722 | Target price: Rs 872 | upside: 21%

The company’s investment of Rs 350 crore for technological and capacity upgradation in the lithium-ion pilot project and 2W/4W batteries is progressing as per schedule, which will drive volume growth in the medium to long term.

An outlay of Rs 220 crore for a 50-MW solar power plant in Andhra Pradesh and setting up of a greenfield lead recycling unit for an outlay of Rs 280 crore is on track.

Tube Investment of India | LTP: Rs 1,179.80 | Target price: Rs 1,306 | Upside: 11%

The company’s strategy to de-risk from the auto sector and concentrate more on industrial segments through acquisitions or inorganic growth will support long-term revenue visibility.

The acquisition of CG Industrial & Power will enhance its product portfolio and revenue mix.

Disclaimer: The views and investment tips 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 making any investment decision.