Top smallcap, midcap stocks to buy: Kotak, ICICI, Edelweiss’ top picks on SEBI’s multicap rule change

It finally may be go-time for small cap and midcap stocks. SEBI issued a circular last week which is expected to further help the small cap and midcap stocks rally.

It finally may be go-time for small cap and midcap stocks. The capital market regulator Securities and Exchange Board of India (SEBI) issued a circular last week which is expected to further help the small cap and midcap stocks rally, after having outperformed the benchmarks in the past few months. SEBI’s order wants multi cap mutual fund schemes to invest at least 25% each in small cap, midcap, and large cap stocks. Currently, the majority of the multi cap schemes concentrate on large cap stocks. The new circular, which fund houses have to abide by, might see schemes sell large cap stocks and invest in small cap and midcap stocks; SEBI has listed other options too for mutual funds though. Here are top picks by some of the leading brokerage firms.

Top picks by Kotak Securities:

Cholamandalam Investment & Finance Co Ltd – The stock currently trades at Rs 230 per share and analysts at Kotak Securities expect the stock to surge to a target price of Rs 300 per share. The company recorded strong net profit growth, trimming provisions. Moratorium, the biggest overhang on financials, is also seen easing on the stock with 50% of customers under moratorium having made payments. 

Federal Bank – The lender is expected to emerge stronger and better in the post coronavirus world. Federal Bank reported a nearly 4% on-year earnings growth despite higher provisions. Analysts at Kotak Securities claim that Federal Bank stock is currently trading at 0.7X in FY22E Book & significant discount to its peers. Moratorium during the second phase was down to 25% only. Loan growth, however, was down to 8%.

Gujarat Pipavav Port – Currently trading at Rs 82 per share, the stock could witness a 36% upside to the target price of Rs 111 apiece. The firm was among some of those that beat street estimates during the April-June quarter results. In the previous quarter, margins stabilized beyond 60% and the company has announced a major capex. 

Top Picks by ICICI Securities:

Balkrishna Industries – The stock has gained 90% from its March lows and is still looking strong. Balkrishna Industries has been picked by ICICI Securities among its midcap coverage universe. Balkrishna Industries has a net cash position of Rs 11.8 billion on its balance sheet at end-June. After marginally slow performance, the company saw pickup in sales across May and June, particularly across the agricultural segment, while the non-agricultural segment was slower to resume. 

ACC – The cement manufacturer is another one of ICICI Securities picks as it expects the volumes to pick up in cement sales from the next fiscal year. Growth in volume for ACC at 28.9 million tonne. It is expected to fall 11% in the fiscal year before regaining momentum in the next financial year. EBITDA growth could slow down but is expected to continue to rise. Price rise and volume growth in September are favourable for the stock.

Strides Pharma – The pharmaceutical space has been a favourite for many this fiscal year and strides pharma’s recent drug approvals could help it boost sales growth in the United States. Analysts at ICICI Securities expect a 12.7% revenue and 58.5% EPS CAGR over FY20-FY23E

with margin improvement of 190bps driven by operating leverage and improving revenue mix for Strides Pharma. 

Top picks by Edelweiss Securities:

Max Financial Services – Among midcap stocks, Max Financial Services is on the list of many market watchers. The recent announcement that Axis Bank would buy an additional 17% stake in the company. The stock has surged substantially since then. 

Jubilant FoodWorks – With delivery being preferred more and more during the times of a pandemic, Jubilant FoodWorks is touted to be one of the biggest beneficiaries. The company recorded 70-85% sales recovery in the months of July and August. With delivery charges to continue, Jubilant FoodWorks has carved a space for itself among customers. The firm will also shut some stores that were not profitable to open stores in newer geographies to lure in more customers. 

IndiaMart InterMesh – The company is poised to witness growth as business activity shifts towards the online world. IndiaMART reported 3.9% YoY revenue growth, broadly in line with the street estimate. It is expected that InterMart’s subscription model will only help it gain more customers.