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CLSA Recommends These Seven Mid Caps To Beat Volatility

Mid-cap stocks are trading at a valuation on par with the NSE Nifty 50 after their recent correction.

But, according to CLSA, it shouldn’t be the only criteria for investors to invest in these stocks. That’s because the research firm expects mid caps to face bouts of volatility this year. Reason being the macroeconomic uncertainties and narrowing gap of earnings growth with the benchmark index.

CLSA Recommends These Seven Mid Caps To Beat Volatility

So, CLSA prefers picking stocks with a bottom-up approach for now, where investors focus on individual companies rather than a whole sector (like consumption, healthcare, affordable housing, hotels, and government welfare spending beneficiaries).

The foreign brokerage also recommended selling two stocks—Voltas Ltd. and Pidilite Industries Ltd.—because of their expensive valuations.

Also read: CLSA On Why Indian Markets Will See Single-Digit Growth In 2019 

Here are the seven mid-cap stocks that CLSA recommends:

Aditya Birla Fashion

  • CLSA’s target price: Rs 240 apiece
  • Bloomberg consensus target: Rs 225
  • Stock recommendation: 15 ‘Buy’; 1 ‘Hold’; 0 ‘Sell’

Why this stock: CLSA said this apparel maker offers a strong combination of India’s top four brands—Louis Philippe, Van Heusen, Allen Solly, and Peter England that come under Madura Fashion & Lifestyle—and one of the largest fashion retail networks—Pantaloons Fashion & Retail. The margin is expected to grow for Pantaloons as it plans to expand stores, while corrective measures at Madura will also boost financials.

Apollo Hospitals

  • CLSA’s target price: Rs 1,500 apiece
  • Bloomberg consensus target: Rs 1,391
  • Stock Recommendation: 21 ‘Buy’; 2 ‘Hold’; 0 ‘Sell’

Why this stock: CLSA said the high capital expenditure phase of the healthcare firm is over and no major capex is lined up over the next two to three years that may lead to a significant operating leverage. Strong brand equity, presence across India, strong doctor relationships and execution track record will also aid India’s largest private-sector hospital chain, it said.

Godrej Properties

  • CLSA’s target price: Rs 843 apiece
  • Bloomberg consensus target: Rs 732
  • Stock Recommendation: 10 ‘Buy’; 4 ‘Hold’; 2 ‘Sell’

Why this stock: CLSA said the real estate company’s delivery track record, professional management and parentage of Godrej group has made it the lone national scale developer. It said Godrej Properties is best placed to capitalise the recent liquidity crisis among non-bank lenders given its strong brand name and partnership model.

Lemon Tree Hotels

  • CLSA’s target price: Rs 87 apiece
  • Bloomberg consensus target: Rs 86
  • Stock recommendation: 6 ‘Buy’; 0 ‘Hold’; 0 ‘Sell’

Why this stock: CLSA said the hospitality firm is moving towards an asset-light model as the brand is firmly established in the mid-price hotel segment, which should drive strong return on capital employed expansion. The recent joint venture with private equity firm Warburg Pincus affiliate ‘Magnolia Grove Investment’ to focus on co-living platform provides Lemon Tree a large option value given the huge size and unorganised nature of the industry.

Supreme Industries

  • CLSA’s target price: Rs 1,271 apiece
  • Bloomberg consensus target: Rs 1,160
  • Stock Recommendation: 15 ‘Buy’; 2 ‘Hold’; 3 ‘Sell’

Why this stock: CLSA said the key competitive advantage for Supreme Industries is its manufacturing capabilities, pan-India distribution reach and technological tie-ups. It expects new capacity expansions and ramp-up of composite cylinders business to drive 12-14 percent revenue growth for the plastic pipes maker.

TTK Prestige

  • CLSA’s target price: Rs 9,000 apiece
  • Bloomberg consensus target: Rs 6,678
  • Stock Recommendation: 5 ‘Buy’; 5 ‘Hold’; 2 ‘Sell’

Why this stock: CLSA said TTK Prestige evolved from being a single-product company to a complete kitchen solutions provider. It said the pressure cooker maker will benefit from rural consumption, government welfare spending and further market share gains from the implementation of the goods and services tax. The Ujjwala scheme of providing free cooking gas connections to all poor households should also lead to an incremental demand for stoves and cookers for the company, it said.

Westlife Development

  • CLSA’s target price: Rs 550 apiece
  • Bloomberg consensus target: Rs 433
  • Stock Recommendation: 5 ‘Buy’; 2 ‘Hold’; 0 ‘Sell’

Why this stock: CLSA said the quick service restaurant’s recent trends in same-store-sales growth have been strong led by a recovery in consumer sentiments and menu innovations, among others. The company’s initiatives to reduce capex and operating expenditure has led to a 30 percent reduction in development costs, leading to a reduction in cash break even from 24 months to 12.

Also read: Party Over for Indian Stocks as Global Cash Shrinks, BofAML Says