The mid and small cap stocks are likely to lead the next leg of rally on Dalal Street, as expectations are running high that the Bharatiya Janata Party and Narendra Modi will kick-start economic growth with major reforms.
After 30 long years a single party has obtained a majority and this could cause the reform momentum to pick up, say experts. The valuation expansion for these stocks will be the highest as economy starts to pick up.The expectations are running high on the street, which is evident from the fact that the S&P BSE Midcap index has rallied over 11 per cent compared a 2 per cent gain in the BSE Sensex since May 16.
For the year the midcap index has gained a little over 26 per cent compared to 15 per cent gains in the BSE Sensex.
"The markets have been rallying smartly from their February lows. In the last three months, we have had around 20-25 per cent kind of a run-up in the Nifty. The midcap index particularly has outperformed quite smartly," said David Pezarkar, CIO-Equities, BOI AXA Investment Managers Pvt Ltd.
For the year the midcap index has gained a little over 26 per cent compared to 15 per cent gains in the BSE Sensex.
Emami: Target price set at Rs 550
Among its mid-cap consumer staple peers, Emami has one of the highest net cash positions, dividend payout ratio and ROE. However, it trades at a 20-25 per cent discount to its Indian mid-cap consumer peers. With growth momentum coming back, Credit Suisse expects the stock to at least trade in-line with its larger mid-cap peers. The stock is the cheapest on a P/E and PEG basis among our consumer staple coverage universe.
ING Vysya Bank Ltd: Target price set at Rs 710
Moderation in growth in FY14 has led to a pause in the operating leverage-driven profitability improvement in the bank. Credit Suisse expects a pickup in loan growth to drive improvement in the cost-income ratio and a 20 per cent CAGR in pre-provision profits. With a comfortable capital position (Tier 1 of 14.6%) and asset quality, it is well positioned for a pick-up in growth.
After 30 long years a single party has obtained a majority and this could cause the reform momentum to pick up, say experts. The valuation expansion for these stocks will be the highest as economy starts to pick up.The expectations are running high on the street, which is evident from the fact that the S&P BSE Midcap index has rallied over 11 per cent compared a 2 per cent gain in the BSE Sensex since May 16.
For the year the midcap index has gained a little over 26 per cent compared to 15 per cent gains in the BSE Sensex.
"The markets have been rallying smartly from their February lows. In the last three months, we have had around 20-25 per cent kind of a run-up in the Nifty. The midcap index particularly has outperformed quite smartly," said David Pezarkar, CIO-Equities, BOI AXA Investment Managers Pvt Ltd.
For the year the midcap index has gained a little over 26 per cent compared to 15 per cent gains in the BSE Sensex.
"Post the elections, people are looking at individual midcap names. If you look at the midcap index or individual names across sectors which might benefit because of new government initiatives, a lot of interest is shifting to midcaps," he added.
Midcaps did quite well relative to their larger peers in the early part of the market's bull-run, both in 2003 and in 2009. Midcaps are also currently trading at about a 40 per cent discount to the larger stocks on 12-month forward P/B multiples, said a Credit Suisse report.
While the discount has narrowed from the 50 per cent levels towards the end of 2013, it is still below the 20 per cent levels reached a few times in the past ten years.
We have collated a list of top ten stocks which can give a return of up to 40% in the next 12 months:
We have collated a list of top ten stocks which can give a return of up to 40% in the next 12 months:
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Emami: Target price set at Rs 550
Among its mid-cap consumer staple peers, Emami has one of the highest net cash positions, dividend payout ratio and ROE. However, it trades at a 20-25 per cent discount to its Indian mid-cap consumer peers. With growth momentum coming back, Credit Suisse expects the stock to at least trade in-line with its larger mid-cap peers. The stock is the cheapest on a P/E and PEG basis among our consumer staple coverage universe.
ING Vysya Bank Ltd: Target price set at Rs 710
Moderation in growth in FY14 has led to a pause in the operating leverage-driven profitability improvement in the bank. Credit Suisse expects a pickup in loan growth to drive improvement in the cost-income ratio and a 20 per cent CAGR in pre-provision profits. With a comfortable capital position (Tier 1 of 14.6%) and asset quality, it is well positioned for a pick-up in growth.
Oberoi Realty Ltd: Target price set at Rs 270
Oberoi has premium positioning in terms of the perception of its properties in this market. It has been utilising an outsourcing model since 2003 to increase the speed of construction, to allow scalability and to enhance design and quality aspects. Credit Suisse places a target of Rs 270 on the stock.
Recent developments include: (1) the purchase of 25 acres from Tata Steel in Borivali, Mumbai, for Rs11.55 bn; (2) Supreme Court clearance for construction on the Mulund property; and (3) a tie-up with Ritz Carlton to operate the hotel and to manage residences at Oasis, Worli. These are likely medium-term revenue drivers.
TTK Prestige Ltd: Target price set at Rs 4000
TTK has invested in aggressively expanding its exclusive retail network (Smart Kitchen), which now has over 500 outlets and covers about 250 cities. The company also expanded production capacity to reduce reliance on imports in the past two years, which will augur well for the medium-term growth outlook.
Oberoi has premium positioning in terms of the perception of its properties in this market. It has been utilising an outsourcing model since 2003 to increase the speed of construction, to allow scalability and to enhance design and quality aspects. Credit Suisse places a target of Rs 270 on the stock.
Recent developments include: (1) the purchase of 25 acres from Tata Steel in Borivali, Mumbai, for Rs11.55 bn; (2) Supreme Court clearance for construction on the Mulund property; and (3) a tie-up with Ritz Carlton to operate the hotel and to manage residences at Oasis, Worli. These are likely medium-term revenue drivers.
TTK Prestige Ltd: Target price set at Rs 4000
TTK has invested in aggressively expanding its exclusive retail network (Smart Kitchen), which now has over 500 outlets and covers about 250 cities. The company also expanded production capacity to reduce reliance on imports in the past two years, which will augur well for the medium-term growth outlook.
Credit Suisse expects induction cooktops and cookware to lead growth for TTK. Increase in cooktop presentation and a shift to branded products in cookware are the key drivers. Revenue from non-southern geographies will continue to grow as a proportion of the total as distribution expansion continues.
MindTree Ltd: Target price set at Rs 1620 (Prabhudas Lilladher)
The management has guided for FY15 growth to be stronger than the NASSCOM guidance (13-15%). The optimism was led by improvement in the deal pipeline by 50 per cent on QoQ basis along with deal win-rate improving from 1-in-5 from 1-in-6. The management expects stronger growth for IT services (14% YoY) and PES (4%) in FY15 than FY14.
The management has guided for FY15 growth to be stronger than the NASSCOM guidance (13-15%). The optimism was led by improvement in the deal pipeline by 50 per cent on QoQ basis along with deal win-rate improving from 1-in-5 from 1-in-6. The management expects stronger growth for IT services (14% YoY) and PES (4%) in FY15 than FY14.
The brokerage firm expects revenue momentum to get stronger with margin expansion at constant currency. It retains 'BUY' with a TP of Rs1,620, 11x FY16E earnings estimate.
Britannia Industries Ltd: Target price set at Rs 1,110 (Prabhudas Lilladher)
BRIT plans to undertake 1) faster and bigger innovations, 2) aggressive cost reduction, 3) distribution expansion, and 4) provision of delightful and affordable consumer experience to sustain profitable growth.
Britannia Industries Ltd: Target price set at Rs 1,110 (Prabhudas Lilladher)
BRIT plans to undertake 1) faster and bigger innovations, 2) aggressive cost reduction, 3) distribution expansion, and 4) provision of delightful and affordable consumer experience to sustain profitable growth.
The brokerage firm has also increased its FY14 and FY15 EPS estimates by 6% and 2% to Rs32.0 and Rs38.8, respectively, and estimates 22% PAT CAGR over FY14/16. They maintain BUY with a target of Rs1,110.
Crompton Greaves Ltd: Target price set at Rs 201(Prabhudas Lilladher)
The company's strong product portfolio has improved its geographical reach and a better manufacturing footprint should help Crompton deliver strong growth once the cycle turns. Among the power ancillaries, CRG is ideally placed to benefit from an improved economic growth.
The company's strong product portfolio has improved its geographical reach and a better manufacturing footprint should help Crompton deliver strong growth once the cycle turns. Among the power ancillaries, CRG is ideally placed to benefit from an improved economic growth.
Prabhudas Lilladher expects a decisive government which should result in a stronger economic growth being reflected in the second half of FY15. They continue to rate the stock a BUY with a TP of 201.Though the stock price has outperformed, they maintain 'BUY' on declines.
NIIT Technologies Ltd: Target price set at Rs 510 (Prabhudas Lilladher)
Growing order book, improved deal pipeline and AAI project ramp-up would give strong revenue growth with steady margin improvement in FY15. It is currently trading at 7.9x FY16E earnings with an EPS CAGR of 16 per cent (FY14-16E), a steep discount to peers. The management expects steady improvement in margin driven by lower hardware revenue and higher US/UK revenue.
ZEE Entertainment Ltd: Target price set at Rs 330 (Prabhudas Lilladher)
Zee reported Q4FY14 earnings ahead of estimates driven by higher topline and margins. Going forward, Zee expects industry ad revenues to grow in double digits in FY15E (we model for Zee ad growth of 15% YoY). On the subscription side, domestic subscription revenue grew by 13.2% YoY in FY14.
The brokerage firm has trimmed its estimates by 6%/4% to factor in lower domestic subscription revenues and higher content costs. However, they maintain BUY as digitization remains a cash cow for Zee, the benefit of which is likely to be realised over the next few years.
NIIT Technologies Ltd: Target price set at Rs 510 (Prabhudas Lilladher)
Growing order book, improved deal pipeline and AAI project ramp-up would give strong revenue growth with steady margin improvement in FY15. It is currently trading at 7.9x FY16E earnings with an EPS CAGR of 16 per cent (FY14-16E), a steep discount to peers. The management expects steady improvement in margin driven by lower hardware revenue and higher US/UK revenue.
ZEE Entertainment Ltd: Target price set at Rs 330 (Prabhudas Lilladher)
Zee reported Q4FY14 earnings ahead of estimates driven by higher topline and margins. Going forward, Zee expects industry ad revenues to grow in double digits in FY15E (we model for Zee ad growth of 15% YoY). On the subscription side, domestic subscription revenue grew by 13.2% YoY in FY14.
The brokerage firm has trimmed its estimates by 6%/4% to factor in lower domestic subscription revenues and higher content costs. However, they maintain BUY as digitization remains a cash cow for Zee, the benefit of which is likely to be realised over the next few years.
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