The BSE Sensex has gained nearly 14 per cent year-to-date till December 17 while BSE Midcap Index has advanced 20 per cent and BSE Smallcap Index 30 per cent.
Analysts said the ongoing momentum in second-rung stocks is likely to continue in 2021.
“Next Calendar year should belong to midcaps and smallcaps. We expect earnings to revive in 2021 and the second-rung companies will offer superior earnings growth in a reviving economy. Thus, 2021 will be a year of the broader market,” says Naveen Kulkarni, Chief Investment Officer, Axis Securities.
That was a common view among top brokerages, who took part in the ETMarkets New Year Survey and picked their top midcap & smallcap bets, which they said could deliver handsome returns over the next 12 months.
- Rusmik Oza, Kotak Securities
CESC: There is stability in the regulated business and reducing losses from distribution circles. Its two subsidiaries, Dhariwal and Haldia, have reported improvement in performance. Dhariwal has tied up 270 MW under long term power purchase agreement. The distribution circles in Rajasthan have also reported significant improvement from losses. We expect earnings of the company to grow 16 per cent in FY22E and 7.7 per cent in FY23E. The standalone business enjoys very high predictability of cash flows and profitability (over 20 per cent Return of Equity). High operating cash flows leads to healthy free cash flow generation.
Kalpataru Power: The company reported better-than-expected performance in Q2FY21 on a faster ramp-up of operations, cost-control measures and higher other income. Kalpataru Power management’s clarification on the group real estate business and target for reduction in pledges was comforting. Borrowing against the pledged shares has come down by Rs 110 crore in last one year to Rs 720 crore and they plan to reduce it further by Rs 150 crore by March 21 and Rs 150 crore by December 21. The consolidated order backlog at the end of September quarter was Rs.26,500 crore and management has maintained revenue growth guidance of 5-10 per cent for FY21. Cash flows from the sale of Jhajhar unit to India Grid Trust have been received and all approvals for the sale of Alipurdar Transmission project to Adani Transmission have been received and cash proceeds are expected to come in December quarter. There are expectations that the company to be debt-free in FY22E.
- Gaurav Garg, CapitalVia Global Research
Apollo Tyres: The momentum in auto sales has significantly improved auto parts sourcing and has benefited auto ancillary companies. Over the past few sessions, tyre stocks have been on a roll logging smart gains at the bourses. This stock has been forming higher lows since March. It is expected to continue its momentum further as it is trading above its important moving averages.
Jindal Steel & Power: The outlook of this stock seems quite stable for the long term. One of the key drivers for near term profitability could be a sharp decline in coking coal prices. The stock has given a trend line breakout on its monthly charts and seems bullish in the near term.
Avanti Feeds: The company operates in business across segments such as shrimp feed, shrimp processing, and power. Demand outlook remains uncertain in the short-term but is expected to witness healthy recovery. The valuation looks attractive and therefore it can be considered as a good buy. This stock seems bullish technically as it is trading above its important moving averages.
- Naveen Kulkarni, Axis Securities
Nocil: Nocil is among the most diversified rubber chemicals companies in the world with about 22 products. This offers its customers to partner with a dependable player offering a one-stop-shop, especially in troubled times like Covid. There has been a significant improvement in the overall business from H2FY21 (aided by unlocking driven improving demand in replacement tyres and OEMs) with a sharp rebound in volumes to be reported in FY22 on the back of new capacity commercialisation, economic growth bouncing back to normalcy and a low base.
CCL Products: The company is the largest private label manufacturer and exporter of instant coffee in India, with a total manufacturing capacity of 35,000 tonnes at its plants in India and Vietnam. CCL Products’ (CCLP) 25 years’ experience in the industry and expertise in customised coffee blends has led it to become one of the largest private labels manufactures in the world with over 5 per cent market share. It has over 250 proprietary blends in its portfolio with clients spread across 90 countries. CCLP’s Ebitda margins at 25 per cent in FY20 were the highest over the last five years led by improved product mix (rising share of freeze-dried coffee (FDC)). Margin expansion is likely to sustain, driven by 1) ramp up in FDC unit utilisation (around 50 per cent in FY20), 2) rise in the share of small packs. CCLP is well placed to deliver steady earnings over medium-term given expertise in customised blends and cost-efficient business model, long-standing client relationships.
Federal Bank: This is a Kerala-based private bank. It has exposure to insurance and NBFC business through its joint venture with IDBI and wholly-owned subsidiary Fedfina respectively. The bank has been proactively managing its strategy from being a regional player towards being a branch light distribution heavy franchise with the push towards digital banking. As Federal Bank entrenches its presence pan – India, it is amongst the few mid-tier banks which have improved its deposit base. In Q2FY21, deposits growth was strong at 12 per cent YoY, led by CASA up around 20 per cent YoY and 6 per cent QoQ. Increasing retail focus, strong fee income, adequate capitalisation (Tier-1 at 13.3%), and prudent provisioning are among the key positives for the bank. The bank has been consistently improving across parameters – efficiency, deposits, fee income.
- Vinod Nair, Geojit Financial Services
Suven Pharma: Post the demerger, Suven Pharmaceutical is well poised to grow exponentially, with a bright future across all the segments. The company has a strong order book with consistent addition of new customers in contract research and manufacturing segment (CRAMs). In the specialty chemical segment, the company has launched new molecules in the past year, which are patent protected. The company recently announced Capex plans of around Rs 600 crore, which would be mainly used for modernisation of manufacturing facilities, relocation of R&D facilities, and acquisition of new technologies.
Mold-Teck Packaging: The company is expected to capitalise from long term growth opportunities aided by higher volumes from increasing acceptance of IML in paint and strong growth momentum in Food and FMCG segment. Further, with the ramp-up of volumes from new plants (Mysore & Vizag) and strong clients additions in FMCG segment, margins will be accretive.
Healthcare Global: While the Covid-19 pandemic and the subsequent lockdown in different parts of the country has impacted its performance in the last two quarters, Geojit Financial Services expects a recovery in footfalls and average revenue per operating bed as lockdown restrictions ease in different parts of the country. Healthcare Global can drastically improve the revenue generation from new centres in Tier 1 cities like Mumbai and Kolkata, improving margins and profitability at centres matures. The recent equity infusion will enable the company to deleverage its balance sheet and remove a key overhang on the stock.
- Vinit Bolinjkar, Ventura Securities
Aarti Drugs: The Indian API industry has sustained price inflation across products along with strong volume demand. Global pharma companies are securing reliable API sources in India and Aarti Drugs plays a crucial role in the global pharma supply chain. Management has announced a capex of Rs 600 crore on 7 projects in the next 18-24 months. These projects will integrate the company’s chemical, intermediaries, and API divisions, which could further improve operational efficiencies.
IDFC First Bank: Aggressive write-downs of legacy NPAs and adequate provisioning for the stressed asset has ameliorated the concerns around asset quality of the bank and its loan book is set to grow at a mid-teen rate in the coming years. Liabilities could grow at a high teen rate driven by faster growth in low-cost CASA deposits, which could further boost earnings. The twin impact of change in lending mix and lower cost of funds should lead to a healthy gradual NIM expansion by FY23.
Godrej Consumer Products: The company has significantly reduced its debt in H1FY21 which augurs well for the company as it strengthens the balance sheet and reduces finance cost pressure on the income statement. The scale-up in different product categories along with new product launches to sustain business momentum and market share gain.
- Deepak Jasani, HDFC Securities
Bandhan Bank: Bandhan Bank is India’s largest MFI company with over 20 per cent market share in India and more than 50 per cent market share in the East and North-east. It has consistently demonstrated a strong track record in growing its balance sheet. As on FY20, its total customer base stood at around 20 million customers with a loan book of Rs 76,000 crore. Post the merger with Gruh Finance, mortgages account for around 26 per cent of the loan book. In the next five years, it aims to transform itself into a one-stop solution for all banking requirements of mid and low-income group customers. It faces some concerns as private banks and new MFIs are expanding their activities in microfinance, resulting in greater competition for Bandhan Bank. Microloans are not backed by collateral; as a result, they may pose a higher degree of risk than loans secured with physical collateral. Their recovery is also susceptible to political risks.
Nippon Life India AMC: NAM India is one of the largest asset management companies in India. Given that India is massively underpenetrated, there is enough scope for asset management companies like NAM to continue to expand profitably. There is increasing acceptability of the Nippon brand by Indian investors. Fund management business has high operating leverage, which will continue to aid profitability. Among concerns, the continuous underperformance of its schemes could lead to a high level of redemption. Management has taken several measures to improve investment performance, including hiring new fund managers and realignment of the portfolio to mitigate this risk. The unprecedented volatility due to Covid-19 fears has impacted the sentiment of retail investors. A considerable amount of lumpsum redemptions and stopping of SIPs may impact AUM growth.
- Ajit Mishra, Religare Broking
Inox Leisure: The multiplex industry had been severely impacted by the lockdown. However, the recent re-opening of theatres is a big positive for the industry. However, the footfall recovery to be gradual post re-opening of theatres. The Covid-19 pandemic can aid further consolidation for the multiplex industry as small exhibitors could suffer due to stressed liquidity position. Inox has been the front runner in the past and we expect the same trend to continue post normalisation. The long-term growth prospect of Inox remains healthy led by new screen addition, higher footfalls and spends per head, and in-organic growth opportunities.
Sudarshan Chemicals: The company is well place to capitalise on opportunities in the global as well as Indian pigment sector driven by positive industry growth trend, a wide range of products, cost competitiveness and strong technical capabilities. In H1FY21 the growth was impacted due to the Covid-19 pandemic, however, the demand has started picking up but the pace is gradual and would normalise by FY21. Further from a long-term perspective, we remain positive on the company’s growth given its strong products, focus on pigments segment, expansion opportunity and strong financial track record.