Dalal Street’s second-rung stocks have underperformed equity benchmarks Sensex and Nifty since early 2018. However, as many as 38 midcap and smallcap stocks have still managed to deliver manifold returns amid challenges of higher valuations, trade tensions and the economic downturn.
What’s more, analysts continue to retain bullish views on a couple of them despite the solid run-up.
Among these big performers, Coastal Corporation stands out with a 1,042 per cent climb year-to-date to Rs 193.50 on August 31, 2020 from Rs 16.94 on January 1, 2018. IOL Chemicals has risen 820 per cent, Dolat Investment 604 per cent, GMM Pfaudler 592 per cent, Apollo Tricoat Tubes 474 per cent, Tanla Solutions 466 per cent and Alkyl Amines 373 per cent, among others.
After peaking out early 2018, BSE broader market indices -Smallcap index and Midcap index – have been on a downturn. The smallcap index is down 26 per cent and the midcap index 18 per cent. BSE Sensex has gained 14 per cent in the same period.
“In general, the market has rewarded a few stocks having good fundamentals over the past two years. Businesses that looked sustainable during the pandemic also saw some buying interest from investors. Companies from chemicals, mid-sized IT and pharma sectors are among some of the examples. Shares of a number of MNCs also moved up on hopes of delisting. However, I advise investors to book profit in the companies trading at higher valuations,” said G Chokkalingam, Founder, Equinomics Research and Advisory.
Certain brokerages have bullish views on some of these names.
Progressive Shares is positive on speciality chemicals player Alkyl Amines with a price target of Rs 3,500. The company posted 50.40 per cent YoY growth in June quarter profit at Rs 52.8 crore.
Data highlighted that select players from pharma, chemicals, consumer durables, NBFC, footwear, paint and pesticides sectors mostly outperformed during this period.
Among them, Aarti Drugs, Procter & Gamble Health, Sadhana Nitro Chem, Ipca Labs and AstraZeneca Pharma have climbed over 200 per cent. These returns came at the time when 80 per cent of stocks on the midcap and smallcap indices eroded investors’ wealth between January 2018 – their last peak points –and August 2020.
Motilal Oswal Financial Services counts Ipca Labs among its high conviction bets, with a price target of Rs 2,420 against Thursday’s trading price of Rs 2,046.
“We remain positive on Ipca on the back of superior performance in the domestic formulations segment, addition of new APIs, increased traction in existing API molecules, product launches under its own label in the UK, and increased backward integration to derive further benefits by improving manufacturing efficiency,” the brokerage said.
The company reported over three-fold growth in consolidated net profit for June quarter at Rs 445.68 crore on robust sales growth.
Among others, Berger Paints, Dr Lal Pathlabs, Laurus Labs, Atul, L&T Infotech, Pfizer, Fermenta Biotech, Vaibhav Global, Info Edge (India), Muthoot Finance, Divi’s Labs, Coforge (formerly known as NIIT Tech), Deepak Nitrite and Abbott India have rallied 100-200 per cent in last 32 months.
Nirmal Bang Securities has a ‘hold’ rating on Vaibhav Global with a price target of Rs 1,939, indicating an upside of 16 per cent from its current market price of Rs 1,670.
“The company has used the current global pandemic as an opportunity and augmented product offerings by including various essential products such as masks, board games, sanitizers, among others,” Nirmal Bang said. The stock has rallied to Rs 1,699 till August 31 from Rs 725 on January 1, 2018.
Berger Paints was hit hard by the nationwide lockdown in June quarter. The company reported a 91.44 per cent drop in consolidated net profit at Rs 15.09 crore for the quarter. Revenues from operations dropped 45.77 per cent to Rs 930.76 crore. Yet, the stock has a ‘buy’ rating from Edelweiss Securities with a price target of Rs 625. “As the situation normalises, we expect Berger to regain volumes and its premiumisation story to sustain,” Edelweiss analysts said.
Shares of Dixon Technologies, Garware Technical Fibres, Relaxo Footwears, PI Industries and Gujarat Gas have advanced 90-100 per cent. Barring PI Industries, others reported 50-93 per cent drop in profit for the Covid-hit quarter. Garware Technical is yet to report its earnings for Q1FY21.
PI Industries is among the top picks of Elara Capital from the agrochemicals space. “The company will be a beneficiary of the shift in orders from China to India due to the continued disruption there. Capex for meeting increased demand from innovators is likely to drive over 20 per cent CAGR over next 2-3 years,” the brokerage said.
Most of these stocks have high promoter holdings. Promoters own in excess of 70 per cent in companies like AstraZeneca Pharma, GMM Pfaudler, Berger Paints, Abbott India, L&T Infotech, Dolat Investment, Alkyl Amines, Vinati Organics, Muthoot Finance, Astec Lifesciences and Relaxo. This also shows the promoters’ commitment to their businesses and confidence in future growth prospects.