2021 Is The Year Of Mid Caps, Says Nepean Capital’s Gautam Trivedi

Mid caps that didn’t do well last year are showing promising signs and are expected to fare much better in 2021, according to Nepean Capital's Gautam Trivedi.

"A lot of the mid-cap stocks have not only moved but also have started to come alive,” said Trivedi, co-founder at Napean Capital that invests in small- and mid-cap companies. Sectors such as auto ancillary, building material, chemicals, contract manufacturing, infrastructure, textiles and tourism have hegemonised the space, he said.

Valuations are expensive, he said citing multiples of Nestle Ltd., Hindustan Unilever Ltd., and Asian Paints Ltd. Only 10-12 stocks below the Nifty 50 index have done well and there are potential opportunities in large- and mix-cap space, he said.

Global private equity funds have also been buying out mid-cap companies in the last 24 months, adding to Nepean Capital interest. Some of their portfolio companies such as Aavas Financiers, JB Chemicals and Pharmaceuticals Ltd., Sequent Scientific Ltd. were taken over private equity funds.

Here are the themes that Trivedi sees doing well this year and why:

Building Materials

Companies in the real estate sector, especially building material, will benefit from the resurgence of the sector, according to Trivedi. Mid-cap stocks in this category, such as Kajaria Tiles Ltd., that saw a subdued in the last 12 months have recently shown signs of coming back to life, he said.

Contract Manufacturing

Dixon Technologies Ltd. has surged 400% and Amber Enterprises Ltd. has also done well, Trivedi said. Despite that, such companies are worth investing because there are very few contract manufacturers, allowing such companies to outperform, he said.

Automobiles

The auto sector has shown a “massive rebound” in the last two to three months and has turned out to be a “sustainable shopping section” for investors, according to Trivedi. Cars selling at Rs 7-8 lakh have seen demand soar amid preference for personal mobility, he said.

Pharmaceutical

After the sector could not perform for six to seven years because of regulatory scrutiny in the U.S., there’s an emergence of mid-cap pharmaceutical companies that are growing well, Trivedi said. “Nepean Capital is bullish on this investment opportunity.”

IPOs

2021 will be a huge pipeline of IPOs, especially gaming companies, according to Trivedi. Since there is a drought of listed tech bets in India, companies such as Nazara Technologies Ltd. will generate investor interest, he said, citing the performance of listed players such as Matrimony.com Ltd. and Info Edge (India) Ltd.

Watch the full conversation here: