Small- and Mid-Cap Stocks to Buy: Check out Jefferies’ Best Stock Picks as the Economic Recovery Kicks in

midcap, smallcaps, clever, sensex, jefferiesHistorically, a phase of disruption has been followed by an outperformance of the Midcap and Smallcap indices (2009, 2016, 2017), explains Sonali Salgaonkar, equity analyst at Jefferies.

The Indian stock market has seen a strong rebound with the start of the unlocking and recovery of companies in the country, since June 2020. The broader stock indexes have outperformed the equity benchmarks thanks to the recovery in economic activity. and optimism from the COVID-19 vaccine. Last Friday, the S&P BSE Small Cap Index hit a new high of 21,411 intraday trade. The index broke its previous high of 21,389 reached on March 3, 2021. While the S&P BSE Midcap Index hit a new 52-week high of 21,085.51 intraday trades on March 4 of this year. So far this month, the S&P Smallcap index has jumped 3.56%, compared to a 1.8% gain in BSE Sensex and Nifty 50.

Historically, a phase of disruption has been followed by an outperformance of the Midcap and Smallcap indices (2009, 2016, 2017), explains Sonali Salgaonkar, equity analyst at Jefferies. The trend continued with the two indices outperforming the Nifty50 index on CY20 and YTD CY21. The Nifty Midcap Index has rebounded sharply by over 70% since June 2020 and is now trading at 24x futures price / earnings (PE), which analysts say is a 29% premium over its average 5-year history. And 53 percent premium over its historical 10-year average. Additionally, the current PE converges to a pre-Covid peak PE multiple of 26x. The best performers since unlock and recovery (Jun 20) have been building materials, electrodes, property and industrials.

Crompton Greaves Consumer Electricals: Crompton Consumer is one of the top players in Indian FMEG (fast moving electrical products), given its diverse product mix (key player in fans, lighting, residential pumps, geysers), a share of formidable market (25% in fans), a robust product pipeline and a strong brand franchise, according to Jefferies. It has a “buy” rating with a price target of Rs 490, a jump of almost 20 percent.

Blue Star: Jefferies valued Blue Star at 35x FY23E (with a premium of 32x on average over 10 years), assigning a target of Rs 1,000, up 5.7%. Blue Star is benefiting from the increased penetration of air conditioners in India.

KEI Industries Ltd: Company leadership is focused on expanding high margin retail business and the company will benefit from unorganized to organized change theme and Atma Nirbhar (Autonomous India) in EHV cable manufacturing, said Salgaonkar . Jefferies valued the company at 16x PE FY23E (a premium over its historical average of 9x), with a target of Rs 650. Currently, the stock is trading at 494.35 a coin.

Supreme industries: Supreme Industries saw good demand from rural / Tier 3 4 towns in the third quarter. Demand for housing products also picked up in the subways, driven by sustained sales of ready-to-live homes. He has a target of Rs 2,360, a rally of 14%. “We value the company at 35x FY22E PE, a premium over the 5-year average multiple of SI,” the report adds.

Kajaria ceramics: Jefferies gave a price target of Rs 1,085, an 8.5 percent gain. The October-December 2020 quarter saw a pick-up in demand for Level 1 subways and cities. Sales in major cities have recovered to 75% of pre-COVID levels.

Ramco cements: The stock is trading lower at Rs 996 from its last traded price of Rs 1,005.65. It has a target price of Rs 1,100 each. It is one of the main beneficiaries of a recovery in demand in the south. After a sharp decline in volume in FY21, Jefferies built in strong double-digit volume growth for Ramco in FY22-23.

Oberoi Realty: The action of Oberoi Realty will have to jump 20% to reach the target price of Rs 668 each. Oberoi is Jefferies’ preferred choice in mid-cap real estate. The company is benefiting from a recovery in the Mumbai real estate market where a reduction in stamp duties has allowed Oberoi to capitalize on its loan inventory.

Sobha: Sobha has a target price of Rs 579 (set at 9x EV / ebitda), which implies a 30 percent hike. Sobha is benefiting from an upsurge in housing demand, driving the company’s sales to record volumes in 3QFY21.

IPCA Laboratories: A hike of 20 is needed to reach a target price of Rs 2,292 a piece. Ipca is unique in generating important clinical data to support its branding activities in India, which has resulted in strong brands like Zerodol.

Max Healthcare Institute: Max Healthcare is trading at 16x EV / EBITDA FY23E, which is 34% off from Apollo hospitals. Jefferies valued Max Healthcare at 19x EV / EBITDA FY23E, a target of Rs 244.

Emami: The report noted that at 30x FY22 adj. BPA, the stock is trading more than 30% off its peers, which may decline in the future. He has a buy note on Emami with a target of Rs 620.

Forge of Bharat: Despite rallying nearly 100% since July 2020, the stock is trading at 5.5x FY22E PB against the last two highs of 6.7x and 7.6x. The target price for Bharat Forge is Rs760.

Mahanagar Gas: Valuations are attractive at 12x FY22E P / E (historical average ~ 17x) while the FCF yield is also robust at 6% in a net cash balance, Jefferies says. “We value MAHGL at 16x FY23E P / E for a PT of Rs 1,700 noting also the upside risks to the consensus earnings estimates,” he added.

Newgen software technologies: Newgen Software Technologies has a ‘buy’ rating with a target price of Rs 390. During FY21-23E, Jefferies expects Newgen to generate 16 percent revenue growth and 12 percent growth of BPA through the growing adoption of its platform and services.

(The stock recommendations in this article are made by the respective research and brokerage firm. Financial Express Online assumes no responsibility for their investment advice. Please consult your investment advisor before investing.)

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