Analysts Are Bullish On These Beaten-Down Mid-Cap Stocks

Analysts and market veterans expect India’s beaten-down small and midcap stocks to rebound after Prime Minister Narendra Modi’s return with a majority.

While the Nifty 50 returned 12.5 percent gains in the last 12 months, the Nifty Midcap 100 and Smallcap 100 indices declined 5.4 percent and 16.2 percent, respectively during the period. Valuations in the broader markets also fell, and the midcap gauge is at its highest discount to the large cap peer in nearly six years.

Brokerages, including CLSA and Macquarie, now expect midcap counters to rebound. Even billionaire investor Rakesh Jhunjhunwala expects them to outperform their larger peers in the next 18 months.

According to Nilesh Shah of Envision Capital, if there is a meaningful pickup in the investment cycle, it will have a multiplier effect on the economy. Then, Shah told BloombergQuint, many of the broader market stocks would get positively impacted.

BloombergQuint looks at the worst mid-cap performers in the last one year that analysts tracked by Bloomberg expect to offer double-digit returns in the next 12 months:

Selection Criteria

The worst performers in Nifty Midcap 100 in the last one year.
Tracked by at least 10 analysts.
Could offer up to double-digit returns in the next 12 months, according to analysts.

Here’s why analysts expect these mid-cap stocks to rebound:

Coromandel International: Expected focus of the new government on agriculture and rural economy may benefit the maker of fertilizers, according to Sudip Bandhopadhyay, group chairman at Inditrade Capital Ltd.

Max Financial Services: Its strategy toward a balanced product mix and focus on non-participatory savings and the protection segment will help improve margin, Emkay Global said.

Escorts: A near-normal monsoon forecast, the government’s subsidy for farm mechanisation will drive volume growth in the ongoing financial year, especially in the southern market, according to Geojit Financial Services.

M&M Financial: The new Modi administration’s efforts to ease the farm distress is expected help the rural-focused non-bank lender. Near-term stock price performance will be driven by how disbursal growth shapes up in the next few months, IDFC Securities said.

Oil India: CLSA expects the new Modi government to fully eliminate kerosene subsidies and cut LPG subsidies. That will make the subsidy risk much less relevant for fuel refiner and retailer.

Apollo Tyres: Expect strong growth in the domestic replacement market across categories and in Europe, according to Anand Rathi. A possible reduction in chemical prices will help improve margin, the brokerage said.

Mphasis: While Mphasis has corrected on concerns around potential slowdown in growth, IIFL finds it attractive as it trades at an 8 percent discount to peers and 12 and 15 percent annualised revenue and earnings per share growth in the next three years. Higher margins could ensure upgrades, it said.

Castrol: The auto and industrial lubricant maker will be able to maintain its market share, driven by expanding distribution reach and an increase in product offerings, according to Dolat Capital. At the current market price, Castrol is factoring most of the negatives, it said.

Jubilant Foodworks: Product innovation, technology to improve presence and customer analytics will help the operator of Domino’s and Dunkin’ Donuts stores in India, according to Gurmeet Chadha, chief executive officer and co-founder, Complete Circle Consultants. That will complement its cost cuts and aid profitable expansion.