The recovery in broader markets seems to be starting. After the rally from March 2020 lows, the Nifty is now trading at a premium to its long-period average. Midcaps, on the other hand, has started performing over the last two months – post its underperformance over more than the two years. In fact, Nifty Midcap100 is down just 2 percent YTD as compared to Nifty which is down 6 percent. So should investors move towards midcaps from the safe largecap stocks? Brokerage house Motilal Oswal has listed 5 high conviction ideas from the midcap space with equal weightage (20 percent each). The brokerage expects these stocks to do well in the short to medium term. One can buy this basket of 5 stocks with a potential upside of 10-15 percent over a time frame of 1-3 months, it added. Here's the list:
ICICI Securities: As per the brokerage, the company is a play on increasing financialisation of savings and retail participation in equity markets. The ongoing challenges in the industry are driving incremental market share toward large, institution-backed brokers like ICICI Securities. It expects revenue and PAT to grow at 14 percent and 19 percent CAGR, respectively, over FY20-23. Further, its business model is capital-light with a dividend payout ratio of around 70 percent which is positive for the stock, added MOSL.
Laurus Labs: The pharma stock has shown strong improvement in performance primarily led by a doubling of formulation sales and supported with a 780 bps margin expansion, said the brokerage. It remains positive on the stock on the back of superior execution across revenue segments, resulting in the expansion of ROE to 27 percent and sufficient levers to sustain the earnings momentum.
Tata Power: The company will benefit from asset monetisation and better working capital management leading to net debt reduction, said MOSL. Infusion of Rs 2,600 crore from promoters would further aid the debt reduction, it added. The approval of a tariff hike at Mundra, possible benefits from the merger of Coastal Gujarat Power and Tata Power Solar with the company, and favorable Infrastructure Investment Trust (InVIT) valuations provide upsides, the brokerage noted.
Crompton Consumer: The company's efforts to improve its leadership position in the fans segment and good start in the new category of water heaters and air coolers, despite the ongoing disruption is commendable, stated the brokerage in its report. With strong profitability and an asset-light business model, return ratios are healthy and provide upside for the stock, added MOSL.
Bharat Electronics: According to the brokerage, BEL is well-positioned to benefit from rising defense expenditure, supported by strong manufacturing and execution, and relationship with defense and government agencies. Strategic collaboration with foreign technology partners and in-house R&D capabilities are also key positives for the stock.